The leading South Asian economy, India, is projected to grow by 8.3% in the fiscal year 2021-22, the World Bank stated. This statistic came out of the South Asia economic focus report which provides a biannual economic snapshot of the region. The same report forecasts that the region as a whole will experience a growth of 7.1% in the years 2021 and 2022. Other major reports by the World Bank include the Human Capital Index and the World Development Report, although it recently decided against continuing issuing ‘Doing Business reports’.
GDP and Its Drivers
The anticipated growth of 8.3% is propelled by amplified public investment aimed at stimulating domestic demand along with strategies such as the Production Linked Incentive (PIL) to augment manufacturing. The first quarter (April-June quarter) of the financial year 2021-22 saw a growth of 20.1% in India’s Gross Domestic Product (GDP), supported by factors like substantial base effect, minimum damage to domestic demand, and robust export growth. The corresponding quarter in the previous financial year, however, witnessed a GDP contraction of 24.4% due to a nationwide coronavirus lockdown.
Second Wave Disruption
Despite the second wave of the pandemic, the World Bank’s observation suggests that its impact on India’s economy was minimal compared to the first wave.
Economic Recovery in India
Recovery of various sectors in India post-pandemic has been uneven. While areas like manufacturing and construction have shown a steady recovery in 2021, others such as low-skilled individuals, self-employed people, women, and small firms are lagging behind. The pace of recovery in the financial year 2021-22 will largely be determined by the rate at which household incomes recover and activities in the informal sector & smaller firms normalize.
Factors Affecting Economic Prospects
India’s economic prospects will be influenced by the pace of Covid-19 vaccination and the successful execution of agriculture and labour reforms. The ‘GDP growth rate’ is computed on a year-to-year basis, meaning a lower growth rate in the previous year results in a low base for the current year’s figure.
Associated Risks to Recovery
Potential risks to the projected recovery include the worsening of financial sector stress, a slowdown in vaccination, and higher inflation which could restrain monetary-policy support.
Suggestions for Medium-Term Growth
The World Bank suggests that it may be beneficial to rethink policies regarding medium-term growth using lessons learned from the Covid-19 crisis. Incorporating social protection and adopting greener policies for environmental stability are recommended. For inequality reduction, the integration of the informal sector and the inclusion of women into the economy should be high-priority elements of the medium-term growth strategy.
Necessity for Regulatory Experimentations
To encourage more competition, both nationally and internationally, the World Bank has suggested lower entry barriers in the services sector for South Asian countries. Other recommendations include aiding labour market mobility, upgrading skills, and enabling new services absorption by households and firms to prevent the emergence of new monopoly powers.
