Strongly supporting India's policy response to the coronavirus pandemic, including the fiscal stimulus package and the nationwide lockdown, a top IMF official has said that the unprecedented crisis has highlighted the need to increase investment in the health care sector in the country.
In an interview to PTI, Chang Yong Rhee, Director of the IMF's Asia and Pacific Department, said IMF also supports the Reserve Bank of India's policy responses to support financial stability and help the Indian economy cope with the fallout from this pandemic.
The death toll due to the coronavirus rose to 414 and the number of cases to 12,380 in India on Thursday.
We strongly support India's policy response to the pandemic, including the fiscal stimulus package and the proactive decision to pursue a nationwide lockdown to stem the spread of the virus and to save lives, Rhee said.
The policy rate actions along with the regulatory measures to boost liquidity would provide some relief to borrowers and financial institutions, he said.
The Finance Ministry unveiled a Rs 1.70 lakh crore economic package on March 26 involving free foodgrain and cooking gas for the poor for the next three months. The Indian government has extended the ongoing nationwide lockdown till May 3 to contain the spread of the pandemic.
Rhee said that the immediate priority for the government needs to be to take all steps needed to address the health needs of the world's second-most populous country.
It could also include extending the lockdown as needed, he noted.
Comprehensive structural reforms are needed to achieve more inclusive and sustainable medium-term growth. The pandemic has highlighted the need to increase investment in the health care sector. It is crucial to prioritize health spending for medical equipment; compensate doctors and nurses appropriately; and make sure that hospitals and makeshift clinics have enough to function effectively, he said.
Going forward, there is scope for additional stimulus, including to support businesses and low-income households, Rhee said.
The economic impact of COVID-19 and related policy measures are expected to be substantial, but recovery should take hold once the virus has been contained, he said.
Responding to a question on the impact of COVID-19 on India's economy, he said on the demand side, growth is affected by weak external demand from major trading partners, a reduction in tourism, and global financial shocks leading to tighter domestic financial conditions, with offset from declining oil prices and fiscal, monetary, and financial policy steps taken.
In addition, growth is weighed down by weak domestic demand from containment measures including the unprecedented national lockdown.
On the supply side, services, manufacturing and construction sectors are severely affected by COVID-19, he said.
Against the backdrop of the pandemic, the Indian economy faces several challenges and risks, both externally and internally, Rhee said.
External risks include a sharper-than-expected and a more prolonged global slowdown and large capital outflows that can amplify domestic financial sector stress and tighten external financing of the corporates, creating a negative feedback loop.
Domestic risks remain elevated from the uncertainty surrounding the pandemic and the effectiveness of containment measures and health policy responses.
A large outbreak would likely increase the length of the lockdown period and could further disrupt the lives of many, especially the vulnerable, strain the health system, and adversely affect unemployment and growth, Rhee noted.
Furthermore, the already-stressed financial sector could face further funding and asset quality pressures from a prolonged shock, he added.
Committing now to credible and clearly defined medium-term measures, along with increasing fiscal transparency, could help the government finance some of its short-term needs by increasing investor confidence and lowering borrowing costs, he said.
Rhee said that comprehensive structural reforms are needed to achieve more inclusive and sustainable medium-term growth. Long-standing and medium-term priorities include infrastructure investments, land, product market, labour, and other reforms, such as increasing female labour force participation and access to finance to create more and better jobs.
The public sector's role in the financial system needs to be reduced to raise credit allocation efficiency, he said.
According to him, a prolonged COVID-19 lockdown could further disrupt the lives of many, especially the vulnerable, strain the health system, and adversely affect unemployment and growth.
Furthermore, the already-stressed financial sector could face further funding and asset quality pressures from a prolonged shock, he said.