Govt. should Continue Financial Assistance for Complete Economy Recovery: Gita Gopinath

Developed countries are continuing with fiscal and monetary support while developing countries are withdrawing support. Financial support is essential until full recovery. Liquidity will have to be provided till a good recovery of the sectors affected by Covid.

IMF Chief Economist Gita Gopinath said this in a conversation with Vivek Dhar. Here are the highlights of the conversation…

What are the biggest economic challenges during and after the pandemic?

In developed countries, 40% of the population has been vaccinated. This figure is 11% in emerging economies and nominal in low-income developing countries. Accelerating vaccination is the biggest challenge in all emerging and developing economies including India.

The second challenge is how countries do policy support to deal with this uncertain situation? The widening gap in economic performance between developed and developing countries is also due to the difference in policy support. While developed countries are continuing with fiscal and monetary aid, emerging and developing countries are withdrawing aid.

How can these challenges be tackled?

Governments will have to continue with fiscal and monetary support. Countries with limited resources must prioritize spending on the health and livelihoods of poor families. Central banks have to ensure that loan terms are not tightened prematurely. Low-income countries will also need international financial aid.

According to the World Economic Outlook, 80 million people worldwide are going to go into extreme poverty. How many people will be from India out of this?

If we look at the two-year period (2020 and 2021) and compare it with 2019, it is estimated that around 2.9 crore Indians will become very poor. The numbers highlight the urgent need to strengthen the social safety net and increase financial support to the most vulnerable.

In the World Economic Outlook, India's growth forecast has been drastically reduced by 3% in 2021. What is the reason for this?

The main reason for reducing the estimate of GDP growth rate in the financial year 2021-22 is the jump in cases of Covid. We mentioned this risk in our growth projections in the April World Economic Outlook, which has now proved to be correct.

What kind of steps should the Reserve Bank of India take in view of the high inflation rate?

Inflation remains under pressure due to the rise in food prices and the supply chain deteriorated by the pandemic. However, in view of the shock of the second wave of Covid, it is necessary that the relief provided through monetary policy remains. Liquidity should reach a good recovery of the sectors affected by Covid. The Reserve Bank's accommodative monetary stance and infusion of adequate systematic liquidity to various sectors is the right decision. At the same time, the high inflation rate also needs to be closely monitored.

What would be your advice to the Government of India as an economist?

The first priority should be to address the health crisis. For this, a continuous coordinated policy response including vaccination is critical. With increased expenditure on health and assistance to the most vulnerable groups, additional financial support is necessary until full recovery. Monetary policy should remain liberal. Adequate systematic liquidity should be ensured. Firms that can survive should retain support and continue with the relief measures for borrowers.

Read More: Tokyo Olympics: Sindhu loses semi-final clash, to play for bronze on Sunday

Like and Follow us on :