The World Bank’s South Asia Economic Focus report recently predicted India’s economic growth to be between 1.5-2.8% for the fiscal year 2020-21, highlighting it as having the slowest growth since the economic reformations of 1991.
Major Predictions of the Report
This report reflects a sharp decline in the South Asian region’s estimated growth rate to between 1.8%-2.8% in 2020, a noticeable drop from the 6.3% prediction made just six months prior. For India specifically, this estimated 1.5-2.8% growth is significantly lower than the 4.1-5.4% forecasted in October 2019. The report also estimates a 4.8-5% growth in the Indian economy for the fiscal year that ended on March 31, 2020, down by 1.2-1% from October 2019’s estimate.
The Impact of COVID-19
India’s already slowing economy suffered a severe blow due to the onset of the COVID-19 pandemic. The government responded by locking down the country to mitigate the virus spread, which resulted in significant domestic supply and demand disruptions. It was followed by a sharp deceleration in growth in FY21 (April 2020 to March 2021). It further delayed the revival of domestic investments due to increased global risk aversion and concerns about the financial sector’s resilience.
Growth Expectations Beyond the Pandemic
Despite the negative predictions, the World Bank expects India’s growth to rebound to 5% in Fiscal 2022 (FY22) as the impact of the Covid-19 crisis lessens and is counteracted by fiscal and monetary policy support. In response to the pandemic, India allocated just over 1% of its GDP to increase health sector spending and provide compensation for the unemployed.
Suggestions and Support from the World Bank
To mitigate the virus’s impact, the World Bank advises India to ensure widespread access to food and prioritize temporary job programs at local levels. Further, it suggests efforts to prevent the bankruptcy of small and medium-sized enterprises. The Bank has also approved a $1 billion support package, the first section of which is aimed at enhancing testing capacity and civilian diagnostic equipment.
Forecasts by Other International Agencies
The Asian Development Bank and S&P Global Ratings predict India’s economic growth to be around 4% and 3.5% respectively. Moody’s Investors Service slashed its estimate to 2.5%, down from its earlier prediction of 5.3%.
1991 Economic Reforms
In 1990-1991, the Indian economy faced severe strains and uncertainties, with rampant inflation and unprecedented external debt crisis. The New Economic Policy, introduced in response, brought about significant changes in national policy, making this period a benchmark in India’s economic history.
About South Asia Economic Focus
South Asia Economic Focus is a biannual update on economic developments and near-term economic forecasts for South Asia. It aims to provide important information and timely analysis of key economic and financial indicators for the region. This series, prepared by the Office of the Chief Economist for the South Asia region, focuses on various economic topics relevant to stability, growth, and prosperity in the region. The reports include country-specific briefs for Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka, concluding with a data section providing essential economic indicators for South Asia.
