The World Bank on Tuesday predicted India’s economy to contract by 9.6% in 2020-’21 financial year and recover to 5.4% in the next fiscal. The bank said India’s expected contraction is due to a sharp decline in household spending and private investment as the coronavirus pandemic badly hit the informal sector that accounts for four-fifths of employment.
“In India, the pandemic hit the economy at a time when growth was already decelerating,” the World Bank said in its Global Economic Prospects report. “The output is estimated to contract by 9.6 per cent in Fiscal Year 2020/21, reflecting a sharp drop in household spending and private investment. In India, growth is expected to recover to 5.4 per cent in 2021, as the rebound from a low base is offset by muted private investment growth given financial sector weaknesses.”
The bank pointed out that non-performing loans in the financial sector were “already high” even before the coronavirus crisis. However, it added that the services and manufacturing sectors were recovering fast.
The Indian economy saw its worst contraction in decades, with the Gross Domestic Product shrinking by a record 23.9%, in the April to June quarter and reflected the severe impact of the coronavirus-induced lockdown. India’s GDP growth rate contracted by 7.5% for the second quarter (July-September). With this, the country’s economy slipped into a technical recessionary phase for the first time ever – when its GDP growth is negative or declining for two consecutive quarters or more.
Since the pandemic shut businesses in March, unemployment in the country has also surged sharply. On August 18, a report by the Centre for Monitoring Indian Economy said nearly 50 lakh salaried persons lost their jobs in July as a result of a partial lockdown.
Several global rating agencies have made gloomy predictions for the Indian economy. The Asian Development Bank has said that India’s economy will contract by 9% in the 2020-’21 financial year. On September 8, American credit rating agency Fitch Ratings sharply lowered its growth forecast for India, saying that the country’s Gross Domestic Product for the financial year 2020-’21 is expected to contract by 10.5%, instead of its earlier estimate of a 5% contraction.
The World Bank said the economic impact of the pandemic has been somewhat less severe across South Asia but still significant. It pointed out that economies of Maldives, Nepal, and Sri Lanka that depend mainly on tourism have been hit hard.
The international agency pointed out that the South Asia region’s slowdown has been led by India. “Regional economic activity is estimated to have contracted by 6.7% in 2020, led by a deep recession in India, where the economy was already weakened before the pandemic by stress in non-bank financial corporations,” the World Bank said.
South Asia is projected to grow by 3.3% in 2021. The prediction is based on the assumption that vaccine will be distributed across the region from the second half of 2021 and there will be no widespread surge in infection.
For Bangladesh, the World Bank estimated growth to decelerate to 2% in the 2019-’20 financial year. Similarly, Pakistan is also predicted to witness contraction in growth by 1.5%. The bank added that growth in Pakistan will be slow even in 2020-’21 because of continued fiscal consolidation pressures and service sector weakness.
The global economic output is projected to grow by 4% in 2021, as per the World Bank’s Global Economic Prospects report. However, it is still 5% below pre-pandemic levels.
The United States’ GDP is expected to grow at 3.5% in 2021 and the Euro area at 3.6%.
World Bank Group President David Malpass said those with the lowest incomes were worst hit and would likely take the longest to regain jobs, healthcare and vaccines, reported The Hindu. “The inequality of the downturn and the likely recovery is dramatic,” he added. “Without course correction investment could remain feeble for years to come.”