On Tuesday, the World Bank slashed its 2021-22 GDP growth forecast for the Indian economy. The world bank slashed the growth projection from 10.1% to 8.3% estimated in April. The reason cited for the lower projection is the economic recovery being hampered by the devastating second wave of coronavirus infections. In April this year, the World Bank had forecast a 10.1 per cent growth in Indian GDP for FY22.
This was higher than 5.4 per cent it had projected in January. But as reported, the projections have now been slashed to 8.3%. Although the forecast has been revised by 2.9 percentage points, this mask significant expected economic damage from an enormous second COVID-19 wave and localized mobility restrictions since March 2021
But it is to be noted that economic activities will benefit from policy support, including higher spending on infrastructure and robust spending in the rural and health development. Though the PMI for May contracted to 50.8 from 55.5 from a month ago, but according to reports, a stronger-than expected recovery in services and manufacturing is expected.
In its latest issue of Global Economic Prospects, the Washington-based global lender stated that an enormous second COVID-19 wave in India is undermining the sharper-than-expected rebound in activity seen. According to the organization, the slump has been particularly seen in services.
The World Bank stated that “India’s recovery is being hampered by the largest outbreak of any country since the beginning of the pandemic”.
Giving future projections of the economy, World Bank projected a 7.5 per cent economic growth in the 2022-23 fiscal. Compared to the global economy, India will respectively fare well as the Bank has projected the global economy to expand by 5.6 per cent in 2021. According to the reports, it will be the strongest post-recession pace in 80 years.
The multilateral agency maintained that “For India, GDP in fiscal year 2021/22 starting from April 2021 is expected to expand 8.3 per cent,”.
It further maintained that “The pandemic will undermine consumption and investment as confidence remains depressed and balance sheets damaged. Growth in FY 2022/23 is expected to slow to 7.5 per cent, reflecting lingering impacts of COVID-19 on household, corporate and bank balance sheets; possibly low levels of consumer confidence; and heightened uncertainty on job and income prospects”.
In its report, the World Bank has stated that for the financial year 2021-22, India’s budget has marked a significant policy shift.
In the budget, the government has announced that the health-related spending would more than double in the coming years. Additionally the Indian authorities have set out a revised medium-term fiscal path intended to address the economic legacy of the pandemic.
As has been reported, following deteriorating pandemic-related developments, the Reserve Bank of India (RBI) has decided to continue its accommodative stance. Thus, it has further announced measures to support liquidity provision to micro, small and medium firms, and loosened regulatory requirements on the provisioning for non-performing loans.
It added that “In India, fiscal policy shifted in the FY 2021/22 budget toward higher expenditure targeted at healthcare and infrastructure to boost the post-pandemic recovery. The renewed outbreak, however, may require further targeted policy support to address the health and economic costs,”.
On March 31, the World Bank had maintained that India’s economy had bounced back amazingly from the COVID-19 pandemic and nationwide lockdown over the last one year. But adding a word of caution, it had also added that it was still not out of the woods yet.