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The IMF has predicted a contraction of 4.5 per cent (-4.5 per cent growth) for India in 2020, a 6.4 percentage point downward revision compared to the April 2020 forecast, the Department of Economic Affairs said in its macroeconomic report for June. It also said that the uncertainty caused by the absence of a vaccine against the coronavirus pandemic poses a "serious challenge" to the economy. (Also Read: IMF Predicts India's Economy To Contract By 4.5% This Year)
"Economic growth of pre-COVID times, as and when restored through fuller unlocking of the economy, will heavily lean on the reforms undertaken today to enhance its potential tomorrow," the report added.
The government and the RBI have taken prompt policy measures - both short term and long term - in a calibrated manner to revive an economy already slowing before the onset of the coronavirus outbreak. The correct anticipation of the economic downturn by the RBI and the government in March has made the policy environment conducive.
The Centre's structural reforms and social welfare measures will help build green shoots in the economy, the report said, adding that its "Atmanirbhar Bharat" stimulus package has accelerated the reforms at a time when the pandemic has led to fiscal constraints for the government and hampered public spending.
The interruption in economic activity on account of COVID-19 has led to a shortfall in the collection of revenue by the government in April and May.
The world is witnessing an unprecedented crisis since January 2020 with the "highly contagious" COVID-19 hitting major economies of the world in rapid succession, according to the report. "Since its first outbreak in Wuhan, China, it has infected more than 200 countries with total number of confirmed cases exceeding one crore and the virus claiming more than five lakh lives," it said.
On domestic financial markets, the report said that COVID-19's impact on the economy is rapidly evolving, which is driving market volatility on a daily basis. "With huge uncertainty around the pandemic stemming from the unknown, and the inability to plan for or know what's next, such uncertainty is expected to adversely affect business climate and make firm delay their investment plans," it said.
The COVID-19 disease and the lockdown are expected to leave an adverse impact on trade. However, the overall effect on net exports may be positive on the back of relatively sharper decline in imports and lower oil prices. The country's trade deficit - or the shortfall in exports compared to imports - narrowed to $3.1 billion in May 2020 - the lowest since February 2009.
India recently overtook Russia to become the world's third worst-affected country with nearly 7,00,000 COVID-19 cases, behind only the US and Brazil, as the outbreak shows no sign of slowing.
Official data on Monday showed more than 23,000 new cases were reported in the previous 24 hours, down slightly from Sunday's record increase of almost 25,000. There have been almost 20,000 deaths in the country since the first case was detected in January. The first case of COVID-19 in India was reported on January 30.