Fri. Mar 29th, 2024
picture credits- Gavi

The World Bank has raised its forecast for India’s financial year 2021-22 growth to 10.1%, substantially higher than the 5.4% it had projected in January.

However, World Bank has not ruled out the possibility of uncertainty due to rising cases and inflation. Reflecting on the uncertainty on account of the pandemic, the World Bank chose to provide a range for its prediction, ranging from 7.5% to 12.5% due to “significant uncertainty at this stage about both epidemiological and policy developments”, the report released on Wednesday said.

World Bank in its report stated that depending on how the ongoing vaccination campaign proceeds, whether new restrictions to mobility are required, and how quickly the world economy recovers, the growth can range from 7.5% to 12.5%.

Talking about India’s pre-pandemic growth slump, World Bank stated that after reaching 8.3% in FY17, growth had decelerated to 4.0 per cent in FY20. According to the report, the slowdown was caused by a decline in private consumption growth and shocks to the financial sector due to the collapse of a large non-bank finance institution, which compounded pre-existing weaknesses in investment.

Hans Timmer, World Bank Chief Economist for the South Asia Region stated that, “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 vaccine.”

The official further added that, “However, the situation is still incredibly challenging, both on the pandemic side with the flare up that is being experienced now. It is an enormous challenge to vaccinate everybody in India.

“India, which comprises almost 80 percent of the region’s (south Asia) GDP, had a substantial revision to growth of 4.7 percentage points since January 2021, due to a strong rebound in private consumption and investment growth in the second and third quarters (July-December, 2020) of FY21,” the Bank said in a report, titled South Asia Economic Focus Spring 2021-South Asia Vaccinates.

Daily GK Update 31 March 2021, Daily Current Affairs 2021
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It is to be noted that the World Bank’s projection can be compared well with IMF which predicted GDP growth rate to be 11.5 per cent during FY22 and Economic Survey which forecasted it at 11 per cent.

Additionally, the World Bank also forecasts the economy to decline by 8.5 per cent in FY21, higher than eight per cent projected by the National Statistical office.

“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,” Timmer said.

According to the World Bank, public consumption will contribute positively to the growth however, pent-up private demand is expected to fade by the end of 2021, as investment will pick up very gradually spurred by a large government capital expenditure push.

Negative spillovers from financial sector distress in the form of NPAs, especially as the forbearance measures by the government expire, remains a risk to the growth outlook. Nonetheless, the Reserve Bank of India’s accommodative liquidity stance is also expected to remain cooperative during the fiscal year ending in March 2022.

As economic activity normalizes, domestically and in key export markets, the India’s current account is expected to return to mild deficits (around one per cent in FY22 and FY23) and capital inflows to be buoyed by continued accommodative monetary policy and abundant international liquidity conditions.

In the world bank report, it has been stated that “The general government deficit is expected to remain above 10 per cent of GDP until FY’22. As a result, public debt is projected to peak at almost 90 per cent of GDP in FY’21 before declining gradually thereafter,”.

Additionally, as growth resumes and the labor market prospects improve, poverty reduction is expected to return to its pre-pandemic trajectory.

According to the report, the poverty rate is projected to return to pre-pandemic levels in FY22, falling within 6 and 9 per cent, and fall further to between 4 and 7 per cent by financial year 2024.

In appreciation for Indian economy, Timmer said that it has bounced back from the initial enormous hit.

“It has bounced back even quicker than we initially thought. The availability of vaccines helped a lot there. That made it possible to open up more and in general to improve confidence in the economy.”

Timmer also added that “If you have no further deterioration or fall back then, that means that the economy this year would grow around nine per cent. With some additional growth you are in double digits. That’s the positive story”. However, the only hindrance to Timmer’s positive prediction can be rising covid cases in India, which have the potential to undo India’s strong rebound emphatically.

Luckily, India has the advantage as compared to some of the other countries that it has foreign direct investment inflows. As it has been reported, India had recorded record high foreign direct inflows in the last fiscal. The high inflows can be attributed to the flight of multinational companies from China to India at the backdrop of negative political rhetoric against China and severe allegations against it’s handling of the crisis.

Timmer said that “(This) probably has to do also with the geopolitical changes in the world economy… investors moving away from China and looking at India. That is an advantage, but you don’t see very strong investments, you see some first signs of domestic investments recovering, that is still an uncertain point,”.

However, even with increasing number of companies leaving China, many weren’t wooed by India. The reason can be attributed to India’s record high Corporate tax rates at the time and its low ranking in ease of doing business.

According to officials, India has so far registered 1,20,95,855 COVID-19 cases and 1,62,114 fatalities.

The number of people who have recuperated from the disease surged to 1,13,93,021, while the case fatality rate stands at 1.34 per cent

By Shivani Khanna

A woman who believes in equal rights and aspires to inspire people through her writings. I aspire to contribute to the economic world and society with diligence and thus being an economic advisor tops my career ambitions . I currently am pursuing Economic honours ( at undergrad level) from delhi university.