The World Bank on Thursday said that India’s Gross Domestic Product is likely to contract by 9.6% in the 2020-’21 financial year. India had registered a negative growth rate of 23.9% for the first quarter of the financial year.
South Asia will register a negative growth rate of 7.7%, the World Bank said, adding that it will rebound to 4.5% in 2021-’22. It made the observations in its latest South Asia Economic Focus report ahead of the its annual meeting and that of the International Monetary Fund.
But income-per-capita in the region will remain 6% below 2019 estimates, due to population growth coupled with economic downturn, the World Bank said. The number of people living below the poverty line has increased by 33% in a single year due to the pandemic, World Bank Chief Economist for South Asia Hans Timmer said.
“The situation is much worse in India than we have ever seen before,” Timmer told journalists in a conference call. “It is an exceptional situation in India. A very dire outlook. We had seen a rise in non-performing loans. Those are all vulnerabilities that India has to deal with.” However, Timmer praised the Indian government’s actions, given the country’s limited resources.
In its report, the World Bank said the spread of the coronavirus and containment measures have severely disrupted supply and demand conditions in India. Prime Minister Narendra Modi had imposed a complete lockdown in the country starting March 25. This was slowly eased from May 1.
“There’s a big problem that the informal sector has no coverage in social insurance,” Timmer said. “What we see now is that especially the informal workers in the middle of the income distribution have lost their jobs. There are no systems in place to support those people.”
In June, the International Monetary Fund had said that India’s GDP will contract by 4.5% in the 2020-’21 financial year. This is much lower than the 1.9% positive growth the IMF had forecast in its World Economic Outlook for April.
The report said that the Indian economy will bounce back in 2021-’22 with a growth rate of around 6%. But this is 1.4% lower than the projection the World Economic Outlook made in April.
In September, the Asian Development Bank forecasted that India’s economy will contract by 9%. However, the bank also predicted that the Indian economy will recover strongly to grow at 8% in 2021-’22.