Economy

World Bank says India's GDP may contract 9.6 per cent

Our Bureau New Delhi | Updated on October 08, 2020 Published on October 08, 2020

Calls for continuing critical reforms to reverse the sudden, steep impact of Covid-19 on economy

The World Bank on Thursday said India’s GDP may contract 9.6 per cent this fiscal. The bank has advised the country to continue with critical reforms to reverse the sudden and steep impacts of Covid-19 on its economy.

 

In June, it had projected contraction to be 3.2 per cent.

The latest projection is higher than S&P’s forecast of 9 per cent but less than 11.5 per cent by Moody’s.

In its South Asia Economic Focus report, released on Thursday, the World Bank forecast a sharper- than-expected economic slump across the region, with regional growth expected to contract by 7.7 per cent in 2020, after topping 6 percent annually in the past five years.

“India’s economy, the region’s largest, is expected to contract by 9.6 per cent in the fiscal year that started in March 2020. India’s growth is projected to rebound to 5.4 per cent in FY22, mostly reflecting base effects, assuming Covid-related restrictions are completely lifted by 2022,” the report mentioned. Further, weak activity, domestically and abroad, is also likely to depress both Indian imports and exports.

Hartwig Schafer, World Bank Vice-President for the South Asia Region, felt Indian Government’s response to pandemic was swift and comprehensive. The government implemented a national lockdown to contain the health emergency. This was followed by a comprehensive policy package to mitigate the impact on the poorest through various social protection measures as well as liquidity and financial support for small and medium enterprises. “The World Bank is partnering with the government to strengthen policies, institutions, and investments for building back better,” he said.

According to Junaid Ahmad, World Bank Country Director in India, India is undertaking far-reaching reforms in its safety nets program. This will help the country to preserve its hard-won gains against poverty as nearly half of all households are vulnerable and the majority of the workforce lacks formal social security benefits. “We are also encouraged by the recent amendments to India’s social security laws that will help provide coverage to groups of people who were earlier left out from government-assisted programs,” he said.

Economic opportunities

World Bank feels the pandemic has also brought to the forefront new economic opportunities where digital technologies can play an essential role, providing new growth levers for South Asian countries, including India. Three-quarters of all workers in South Asia depend on informal employment. While the poor have faced rising food prices, the CovidD-19 crisis has also affected informal workers in the middle of the income distribution who experienced sharp drops in earnings.

Informal workers are not generally covered by social insurance and few have savings or access to finance. Recognising these challenges, India is reworking its social protection architecture to protect its workers, particularly informal sector workers, hit hard by the Covid-19 pandemic. “Government is creating a safety net platform that caters to the diverse needs of both rural and urban population, is portable and ensures food, social insurance and cash support across state boundaries,” the bank said.

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Published on October 08, 2020
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