World Bank Predicts 7.5-12.5% Growth For India

Global lender hails economic recovery but outlines several areas awaiting revival to pre-Covid level
World Bank Predicts 7.5-12.5% Growth For India
World Bank Predicts 7.5-12.5% Growth For India

The Indian economy has reversed amazingly from the Covid-19 pandemic but it is not out of the woods yet, according to the World Bank, which pegs the country’s real GDP growth for the fiscal year 2021-22 at 7.5-12.5 per cent.

The Washington-based global lender, in its latest South Asia Economic Focus report released ahead of the annual Spring meeting of the World Bank and the International Monetary Fund (IMF), says that the economy was slowing when the pandemic unfolded. After reaching 8.3 per cent in FY17, growth decelerated to 4.0 per cent in FY20, it says.

The slowdown was caused by a decline in private consumption growth and shocks to the financial sector (the collapse of a large non-bank finance institution), which compounded pre-existing weaknesses in investment, says the analysis.

Given the significant uncertainty pertaining to both epidemiological and policy developments, the real GDP growth for FY21-22 can range from 7.5 per cent to 12.5 per cent, depending on how the ongoing vaccination campaign proceeds, whether new restrictions to mobility are required, and how quickly the world economy recovers, the World Bank says.

“It is amazing how far India has come compared to a year ago. If you think a year ago, how deep the recession was… unprecedented declines in activity of 30 to 40 per cent, no clarity about vaccines, huge uncertainty about the disease. And then if you compare it now, India is bouncing back, has opened up many of the activities, started vaccination and is leading in the production of vaccination,” Hans Timmer, World Bank Chief Economist for the South Asia Region, says.

He, however, points out that the situation is still incredibly challenging because of the flare up of a second wave of pandemic. It is an enormous challenge to vaccinate everybody in India, he says. “Most of the people underestimate the challenge.”

Timmer says that despite the rebound, there is uncertainty here about the numbers, but it basically means that over two years there was no growth in India and there might well have been over two years a decline in per capita income.

“That’s such a difference with what India was accustomed to. And it means that there are still many parts of the economy that have not recovered or have not fared as well as they would have without a pandemic. There is a huge concern about the financial markets,” he says.

“As economic activity normalises, domestically and in key export markets, the current account is expected to return to mild deficits – around 1 per cent in FY22 and FY23 – and capital inflows are projected by continued accommodative monetary policy and abundant international liquidity conditions,” the report says.

Noting that the Covid-19 shock will lead to a long-lasting inflexion in India’s fiscal trajectory, the report says that the general government deficit is expected to remain above 10 per cent of the GDP until FY22. As a result, public debt is projected to peak at almost 90 per cent of the GDP in FY21 before declining.

As growth resumes and the labour market prospects improve, poverty reduction is expected to return to its pre-pandemic trajectory. The poverty rate – at the $1.90 line – is projected to return to pre-pandemic levels in FY22, falling within 6 per cent and 9 per cent, and fall further to 4-7 per cent by FY24, the World Bank says.

Related Stories

No stories found.
Outlook Business