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Education, financial sectors should be focus areas for revenue expenditure: IMFs Gopinath

Updated : April 07, 2021 08:36 PM IST

The International Monetary Fund (IMF) has released its World Economic Outlook for 2021. The report flags an unprecedented contraction of activity in 2020 but it does point out that the contraction could have been three times as large if it wasn't for extraordinary policy support.

The good news is that after a 3.3 percent contraction in 2020, the global economy is now projected to grow at 6 percent in 2021 before moderating to 4.4 percent growth in 2022.

The numbers are optimistic for India as well. After recording an 8 percent contraction in 2020, the country's GDP is expected to rise by 12.5 percent in 2021 and by 6.9 percent in 2022. That is the highest projection among all emerging economies.

But the global outlook remains sober on metrics such as educational attainment, employment and income inequality. It estimates that close to 95 million more people have fallen below the threshold of extreme poverty in 2020 compared with pre-pandemic projections. It says countries will need to tailor policy responses to the stages of the pandemic, strength of the recovery, and structural characteristics of the economies.

In an exclusive interview with CNBC-TV18 managing editor Shereen Bhan, Chief Economist of IMF Gita Gopinath said that India's current fiscal stance is appropriate but there is a case to be made to do some more on the revenue expenditure front. She also emphasized that education and financial sectors should be areas of focus for the government.

"If you look at the fiscal stance for India including the February Budget, then overall the stance is appropriate, it is not pulling back support, it is not withdrawing support, so that is a good thing. What I would say though is that the focus is on capital expenditures as opposed to revenue expenditures. So I would say there is a case to be made to do some more on the revenue expenditure front - maybe about 0.5 percent of GDP and that could be spent for instance on extending income transfers and also on expenditure on education. The second issue is in terms of the financial sector. This pandemic has lasted long, there are firms that will exit with weaker balancesheets and non-performing loans will become a bigger problem. So it is important to plan for more capital infusions into the banking sector."

She said, "Our forecasts were locked in on March 5, so we certainly haven't taken second wave into account. However when we did our projections, we assumed that the virus was still around and there were still chances of localised lockdowns. That is why when you look at the numbers in terms of the sequential growth, it is fairly conservative in 2021. However if the lockdowns become much more of nationwide lockdowns, then that is a serious downside risk to our forecast."

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