The International Monetary Fund (IMF) has handed a sharp 300 basis point cut to its India growth forecast. For this financial year, the IMF is now pegging a growth rate of 9.5 percent from 12.5 percent that it had pegged in April before the deadly second wave of COVID-19.

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This is the sharpest cut to any country's growth forecast.

For the next financial year, IMF has upgraded its growth forecast from 6.9 percent to 8.5 percent.

The key highlight of the IMF's outlook is vaccine inequality. The fund has highlighted that 13 percent of the world's population is fully vaccinated. Among the advanced economies, almost 40 percent of the population is fully vaccinated.

In emerging economies only 11 percent are fully inoculated and in low-income countries the vaccination rate is a paltry 1.2 percent.

The IMF has warned that this level of inequality could even jeopardise global recovery. Shereen Bhan spoke to IMF’s Chief Economist Gita Gopinath.

On global outlook Gopinath said, “I just want to re-emphasis vaccine inequality is a huge fault line and driving these very divergent recoveries. A second major fault line is on policies support. While we are seeing fiscal support is quite generous and continue into this year for most advanced economies that support has pretty much ended for many emerging markets either last year or there is very little in the pipeline into the future. So many of them are already in consolidation mode. That is another very important source of the gap because just keeping in mind that emerging markets in the first place did much less, were able to do much less in terms of providing fiscal support.”

“Third source of a gap comes from what we are seeing around the world in terms of inflation and what is that implying for monetary policy. While we are seeing inflation ramp-up in many parts of the world, for many advanced economies they are able to see through those transitory inflation moves. But for several emerging markets that is leading into a tightening cycle.”

“The one last point which is much more long term aspect which is on education. I really worry about the hit to education that we have seen over the past year with kids out of school for such a long period of time in the developing world and that is a huge hit on productivity of the labour force for the future.”

On recovery in India Gopinath said, “In April when we put out our forecast for 12.50 percent that time we were at the very early stages of the second wave in India and we had warned that if we got some very wide spread lockdowns then that would risk a downgrade to that forecast and that was realised basically. We had very severe restrictions put in many states and that is one of the biggest factors behind the downgrade.”

“In terms of coming out of it, we are seeing recoveries, but if you look at the high frequency indicators it is mostly in industrial sector, manufacturing and not in services. So given that this was very severe second wave, given that there are risks of future increase in cases happening we are projecting a fairly modest recovery coming out of this second wave.”

For full interview, watch accompanying video.

(Edited by : Aditi Gautam)