Regional growth is projected to rebound to 4.5 percent in 2021.
The World Bank on Thursday said that India’s GDP is predicted to contract by 9.6 percent this fiscal which is reflective of the national lockdown and therefore the income shock experienced by households and firms thanks to the COVID-19 pandemic, noting that the country’s economic situation is “much worse” than ever seen before.
The Washington-based global lender, in its latest South Asia Economic Focus report before the annual meeting of the planet Bank and International fund, forecasts a sharper than expected economic slump across the region, with regional growth expected to contract by 7.7 percent in 2020, after topping six percent annually within the past five years.
“India’s GDP is predicted to contract by 9.6 percent within the financial year that started in March,” the planet Bank said within the report released here.
Regional growth is projected to rebound to 4.5 percent in 2021, it said.
Factoring in increase, however, income-per-capita within the region will remain 6 percent below 2019 estimates, indicating that the expected rebound won’t offset the lasting economic damage caused by the pandemic, it said.
“The situation is far worse in India than we’ve ever seen before,” Hans Timmer, International Bank for Reconstruction and Development Chief Economist for South Asia told reporters during a call.
“It is an exceptional situation in India. a really dire outlook,” he said.
There was a 25 percent decline in GDP within the second quarter of the year, which is that the half-moon of the present financial year in India.
In the report, the planet Bank said that the spread of the coronavirus and containment measures have severely disrupted supply and demand conditions in India.
With the intent to contain the spread of COVID-19, Prime Minister Narendra Modi, with effect from Annunciation, announced a nationwide complete lockdown that brought the maximum amount as 70 percent of economic activity, investment, exports, and discretionary consumption to a standstill. Only essential goods and services like agriculture, mining, utility services, some financial and IT services, and public services were allowed to work.
Dubbed because of the world’s biggest lockdown, it shut a majority of the factories and businesses, suspended flights, stopped trains, and restricted the movement of vehicles and other people.
According to the planet Bank, monetary policy has been deployed aggressively and monetary resources are channeled to public health and social protection, but additional counter-cyclical measures are going to be needed, within a revised medium-term fiscal framework.
Despite measures to shield vulnerable households and firms, the trajectory of poverty reduction has slowed, if not reversed, it said.
“We have seen from the rapid survey that a lot of people have lost their jobs,” Timmer said, adding that this is often happening against a background when India’s economy was already slowing down before the pandemic.
“We had seen an increase in non-performing loans. Those are all vulnerabilities that India has got to affect,” he said.
Responding to an issue, Timmer said what the Indian government has through with limited resources and limited fiscal space is extremely impressive.
“We have seen a loosening of monetary policy. you’ve got seen attempts to extend credit to the private sector to assist a corporation to survive,” he said, adding that there are big efforts within the health sector and expansion of a social safety net.
“But with every big crisis, I think, we’ve to understand that this may not re-evaluate anytime soon. And it’ll change the longer-term future also. What this reveals is nearly as good as federal policies, especially the policies associated with the informal sector.
“There’s an enormous problem that the informal sector has no coverage on social welfare. What we see now’s that especially the informal workers within the middle of the income distribution have lost their jobs. There are not many systems in situ to support those people,” Timmer said.
Responding to a different question, Timmer said that as a result of COVID-19, the planet Bank estimates that in one year, the amount of individuals living below the poverty level has increased by 33 percent.
In its report, the planet Bank said that the response of the govt of India to the COVID-19 outbreak was swift and comprehensive. A strict lockdown was implemented to contain the health emergency.
To mitigate its impact on the poorest, it had been complemented by social protection measures; to make sure that companies could maintain their operations, the Federal Reserve Bank of India and therefore the government also provided liquidity and other regulatory support, it said.
“Nonetheless, there was a huge contraction in output and poor and vulnerable households experienced significant social hardships – specifically urban migrants and workers within the informal economy,” the bank said.
After fiscal 2017, during which the economy grew at 8.3 percent, growth decelerated in each subsequent year to 7.0, 6.1, and 4.2 percent.
This was on account of two mutually reinforcing dynamics: emerging weaknesses in non-bank financial companies (a major source of credit growth, making up for risk aversion from banks), and slowing private consumption growth, the bank added. —PTI
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