“Containing this virus first is very important. Without containing the covid-19 virus, the economic recovery will be very difficult. Protecting people’s lives and their livelihood in the short term period will provide the basis for economic recovery,” Changyong Rhee, Director at the Asia Pacific of IMF said addressing a webinar jointly organized by National Stock Exchange and the IMF.

Raising concern over rising confirmed cases of covid-19 on a daily basis, Ranil Salgado, Assistant Director at Asia Pacific division of IMF said high frequency indicators such as Google Mobility suggest that economic recovery has flattened after picking up in early June. “Concern we have is that things have started to plateau as the positive impact from exit is not as strong as the negative impact of the lockdown,” he added.

On the fiscal support by the Indian government so far, Salgado said India’s above the line fiscal support which is included in the deficit is 1.9% of GDP while the below the line fiscal support including government guarantees is 4.9% of GDP.

While recognizing that going into the covid-19 crisis, India had limited fiscal space available, Rhee said in an extreme situation, where India needs to issue a large amount of government bond, some degree of monetization of deficit may be unavoidable. “But that has to be met with some concrete plan to get back to normal without hurting the central bank independence,” he said.

“If you look at what the credit rating agencies have said in the past couple of months, they are willing to look through the covid-19 crisis. Their concern is growth in the medium term remains high and there is fiscal consolidation after the covid-19 crisis,” Salgado added.

Salgado said IMF expects food price to continue to gradually decline in the current fiscal year from the shock increase in end-2019. “This gives significant scope for the Reserve Bank of India (RBI) to support the economy. We still see scope for the RBI to further reduce policy rate, at least to maintain accommodative liquidity condition as long as decline in headline inflation continues as we expect,” he added.

Since March, RBI has lowered repo rate by 115 bps and reverse repo rate by 145 bps to boost liquidity in the banking system.

Though India stands out for the structural reforms it announced during the coronavirus pandemic, Salgado said IMF believes these are beneficial in the medium to long term than for immediate growth prospects. “There is a long reform agenda that needs further efforts including land, labour, trade restrictions, continued progress on infrastructure investments which will boost growth in medium term,” he added.

Salgado said there are concerns in corporate sector vulnerabilities. “Outstanding corporate debt and corporate leverage ratio in India have been growing. These are something to watch especially given the covid-19 shock is probably affecting the corporate sector of India. We have equivalent concerns for MSMEs as they are also struggling through the covid-19 crisis, though there is less data available,” he added.