The International Monetary Fund (IMF) has released its latest World Economic Outlook update. It says while vaccine approvals are good news for a turnaround from the pandemic, concerns still linger owing to new strains that have emerged in different parts of the world.

The IMF projects that the global economy will grow at 5.5 percent in 2021 and 4.2 percent in 2022. For 2020 though the global growth contraction is estimated at negative 3.5 percent, 0.9 percentage points higher than the previous forecast.

For India the picture looks more promising. The IMF has revised its growth forecast sharply higher to 11.5 percent for FY22 and 6.8 percent for FY23.

With the Union Budget 2021 just a few days away, all eyes are on finance minister Nirmala Sitharaman, who has promised a budget like never before. But to deliver on stimulus measures to push growth without blowing up the fisc will not be an easy task.

In an interview to CNBC-TV18's Shereen Bhan, Gita Gopinath, chief economist at IMF said, "Global growth for 2021 is projected to exceed pre-pandemic levels but that is only because we are stating off a very low base. The statistics I would like to look at is where the world would have been in the absence of this pandemic and what is the gap to be closed? That unfortunately doesn't close even until 2025. However, we certainly are at a better starting point this year than we had expected in October."

Speaking about India, Gopinath said, "What has kind of worked well for India is that when the economy opened up after the stringent lockdowns, you saw activity recovering much faster than expected. Mobility has returned much more quickly. While in other economies when you reopened, you then had a second and third strong wave of the pandemic, that has not happened in India. In India you have actually seen a sharp decline in the number of active cases which may be a reflection of the fact that there were many more in India who were infected but were asymptomatic and therefore have the anti-bodies. So that is a very important piece of this revision too."

She highlighted that strengthening Insolvency and Bankruptcy Code (IBC) should be a priority given that non-performing assets (NPAs) are expected to rise. She explained, "If you are going to have NPAs go up to 13 percent in the base line, that would require a much more efficient IBC process. The Bad Bank is certainly a reasonable idea but right now I would encourage the banks and the NBFCs to raise capital given how easy the financial conditions are at this point. Government should also prepare for needing to put in capital infusion into the public sector banks."

"Advanced economies spent about 24 percent of their GDP in terms of fiscal support in 2020. Emerging market middle income countries spent 6 percent and low income countries spent 2 percent and that was a reflection of the fact that these countries have very different levels of fiscal space. I would remind a lot of countries that given the environment that they are in with record low levels of interest rates, you should certainly view any kind of withdrawal of policy support in a gradual manner and use your borrowing capacity to be able to smooth it out. Second use your fiscal space to provide targeted support which is making sure that you are spending on health, making sure that you are making transfers to poor households. The third of course is in terms of raising revenues and this varies across countries. In the case of India, it must improve defectiveness of GST collections as there is a significant gap there which needs to be closed. Divestments is the second way of making that happen. We are in favour of having one off solidarity taxes that can help countries with their budget. Wealth taxes have typically not worked very well in many countries", she added.

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(Edited by : Aditi Gautam)