The World Bank on Tuesday slashed its growth forecast for India for 2021-’22 financial year to 8.3% from 10.1% estimated in April. The agency attributed it to the devastating second wave of the coronavirus pandemic that slowed down the economic revival in early 2021.

“In India, an enormous second Covid-19 wave is undermining the sharper-than-expected rebound in activity seen during the second half of FY2020/21, especially in services,” the World Bank said in its latest Global Economic Prospects report. “With surging Covid-19 cases, foot traffic around work and retail spaces has again slowed to more than one-third below pre-pandemic levels since March, in part due to greater restrictions on mobility.”

For the 2022-’23 fiscal year, the agency estimated a further drop in the Gross Domestic Product growth to 7.5%. “Activity is expected to follow the same, yet less pronounced, collapse and recovery seen during the first wave,” said the World Bank. “The pandemic will undermine consumption and investment as confidence remains depressed and balance sheets damaged. Growth in FY2022/23 is expected to slow to 7.5% reflecting lingering impacts of Covid-19 on households, corporate and bank balance sheets; possibly low levels of consumer confidence; and heightened uncertainty on job and income prospects.”

The global agency said that economic activity will benefit from policy support, including higher spending on infrastructure, rural development and health, and an unexpectedly strong rebound in services and manufacturing sectors.

On Monday, Prime Minister Narendra Modi announced free foodgrain for the poor till Diwali. However, the Centre has not yet declared any stimulus package. Meanwhile, the Reserve Bank of India in May had announced that it will transfer a surplus of Rs 99,122 crore to the central government for the nine-month accounting period that ended March 31. The surplus transfer amount is the second highest ever in any financial year.

The World Bank, in its report, noted the policy shift towards healthcare and infrastructure expenditure in the Union Budget, but said that more needs to be done. “The government announced health-related spending would more than double and set out a revised medium-term fiscal path intended to address the economic legacy of the pandemic,” it added. “…The renewed outbreak, however, may require further targeted policy support to address the health and economic costs.”

Global economy

The global economy is expected to grow 5.6% in 2021-’22, said the World Bank. This is the fastest post-recession pace in 80 years. Among the major economies, the United States’ growth is projected to be 6.8% while China is expected to report a 8.5% growth.

“While there are welcome signs of global recovery, the pandemic continues to inflict poverty and inequality on people in developing countries around the world,” said World Bank Group President David Malpass. “Globally coordinated efforts are essential to accelerate vaccine distribution and debt relief, particularly for low-income countries. As the health crisis eases, policymakers will need to address the pandemic’s lasting effects and take steps to spur green, resilient, and inclusive growth while safeguarding macroeconomic stability.”