The International Monetary Fund (IMF) has unveiled its 2nd World Economic Outlook (WEO) Report.

About WEO Report

• The WEO is a report by the IMF that analyzes key parts of the IMF’s surveillance of economic developments and policies in its member countries.
• It also projects developments in the global financial markets and economic systems.
• The report comes out twice every year — April and October.
• It is based on a wide set of assumptions about a host of parameters — such as the international price of crude oil — and set the benchmark for all economies to compare one another with.

Key takeaways from the October 2021 WEO

• The central message was that the global economic recovery momentum had weakened due to the pandemic-induced supply disruptions.
• It is the increasing inequality among nations that IMF was most concerned about.
• The dangerous divergence in economic prospects across countries remains a major concern.

Reasons for the slowdown

There are two key reasons:

1. Large disparities in vaccine access
2. Differences in policy support

What about Employment?

Ans. There is a lag.

• Employment around the world remains below its pre-pandemic levels.
• This reflects a mix of negative output gaps, worker fears of on-the-job infection in contact-intensive occupations, childcare constraints, labour demand changes due to automation etc.
• The main concern is the gap between recovery in output and employment which is likely to be larger in emerging markets and developing economies than in advanced economies.
• Further, young and low-skilled workers are likely to be worse off than prime-age and high-skilled workers, respectively.

Implications for India

Ans. Reduce India’s growth momentum

• IMF has suggested that India’s economic recovery is gaining ground.
• Some sectors such as the IT-services sectors have been practically unaffected by Covid, while the e-commerce industry is doing brilliantly.
• However, the recovery in unemployment is lagging the recovery in output (or GDP).
• This matters immensely for India as it reflects jobless growth.
• India was already facing a deep employment crisis before the Covid crisis, and it became much worse after it.
• Lack of adequate employment levels would again drag down overall demand and affect the growth momentum.

Threats to growth momentum

• Usual unemployment: Even before the pandemic, India already had a massive unemployment crisis.
• Sector-wise recovery: India is witnessing a K-shaped recovery. That means different sectors are recovering at significantly different rates.
• Unorganized sector: A weak recovery for the informal/unorganized sectors implies a drag on the economy’s ability to create new jobs or revive old ones.
• Contact-based services: Such services which can create many more jobs, are not seeing a similar bounce-back.

How informal is India’s economy?

• A NSO report titled ‘Measuring Informal Economy in India’ gives a detailed account of informal Indian economy.
• It shows the share of different sectors of the economy in the overall Gross Value Added and the share of the unorganised sector therein.
• The share of informal/unorganised sector GVA is more than 50% at the all-India level, and is even higher in certain sectors.
• It creates a lot of low-skilled jobs such as construction and trade, repair, accommodation, and food services.

This is why India is more vulnerable.

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