India’s GDP to Shrink by 9.6% in FY21: World Bank

World Bank sharpens India’s GDP decline forecast considering the impact of national lockdown and income on households and businesses. The institution projects GDP to shrink 9.6% in FY21.

GDP to Come Down by 9.6%

The World Banks, in South Asia Economic Focus report, has upped estimates for India’s GDP contraction for FY21 from 4.5 % in June to 9.6%. The forecast for a decline in India’s GDP has been revised since June’s projection of 3.5%. Further, it expects growth to rebound to 5.4% assuming a complete absence of COVID-19 related restrictions in 2022. Besides, current account balances are expected to improve in the short term, while capital inflows are expected to remain positive in the baseline. Further, it estimates inflation to remain within RBI’s midpoint range of 4%. While it projected fiscal deficit to increase by 12% in FY21, public debt will remain elevated around 94%.

South Aisa to Plunge into the Worst Recession

The report highlighted that South Asia might plunge into its worst recession owing to the devastating impacts of COVID on informal working and the economy. The World Bank forecasts regional growth to contract by 7.7% in 2020. It noted that the region earlier slipped into recession owing to the decline in investment and exports. However, this time, the hit is on consumption which is the backbone of the economic welfare of the region. Hartwig Schafer, World Bank Vice President for South Asia Region, mentioned that pandemic has brutally impacted the South Asian economies. It has put millions out of jobs and businesses. That said, three-quarters of informal workers in South Asia dependent on the retail hospitality trade, and transport sectors are suffering severely due to high food prices.

Digitalization to Accelerate Recovery

The agency noted several quick and comprehensive steps taken by the Indian government to mitigate the effects of the pandemic. Nonetheless, vulnerable households, including informal and migrant workers, experienced hardships. Further, it urged the government to come up with universal social protection policies focusing on greater productivity and skill development. Also, it highlighted how essential digitalization could prove beneficial in a speedier recovery of GDP.

The report concluded that though the pandemic will have a long-lasting impact on south Aisa, it has provided opportunities to transform and spur innovation in several sectors.  

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