GDP contraction: World Bank sticks to 9.6% estimate

The World Bank on Tuesday maintained its GDP (Gross Domestic Products) estimate for India for the FY 2020-21 fiscal at a negative 9.6 per cent.

In October, the Bank, in its South Asia Economic Focus report, had projected a contraction of 9.6 per cent. Now, its latest report on Global Economy, has maintained the projection.

This is higher than RBI’s projection of 7.5 per cent and ADB’s projection of 8 per cent contraction, but almost close to Fitch’s revised projection of 9.4 per cent. However, it is less than Goldman Sachs’s estimate of 10.3 per cent contraction and Moody’s 10.6 per cent.

“In India, the pandemic hit the economy at a time when growth was already decelerating. Output is estimated to contract by 9.6 per cent in fiscal year 2020-21, reflecting a sharp drop in household spending and private investment,” the Bank said. Further, it mentioned that the informal sector, which accounts for four-fifths of employment, has also been subject to severe income losses during the pandemic.

The report noted that recent high frequency data indicate that the services and manufacturing recovery is gaining momentum. In the rest of the region, the economic impact of Covid-19 has been somewhat less severe but still significant. Economies that depend heavily on tourism and travel have been especially hard hit (Maldives, Nepal, Sri Lanka).

However, the report says, Indian economy is estimated to recover to 5.4 per cent in FY 2021-22 “as the rebound from a low base is offset by muted private investment growth given financial sector weaknesses.”

The report highlighted that in the financial sector, non-performing loans were already high before the pandemic. Even RBI in its latest report cautioned about possible deterioration in asset quality. However, the Government does not see much slippage.