India GDP recovery. India’s GDP growth estimated to be in range of 7.5-12.5%: World Bank

The World Bank has estimated India’s GDP (Gross Domestic Product) growth to be in range of 7.5 to 12.5 per cent during FY 2021-22 (FY 22). For the fiscal year 2020-21 ending on Wednesday, GDP contraction is estimated at 8.5 per cent as against growth of 4 per cent during FY 2019-20.

Growth estimate for FY 22 is “depending on how the ongoing vaccination campaign proceeds, whether new restrictions to mobility are required, and how quickly the world economy recovers,” the Bank said in its report titled ‘Sour Asia Economic Focus Spring 2021: South Asia Vaccinates.’

Further it said that as economic activity normalises, domestically and in key export markets, the current account is expected to return to mild deficits (around 1 percent in FY22 and FY23) and capital inflows are projected by continued accommodative monetary policy and abundant international liquidity conditions.

“The Covid-19 shock will lead to a long-lasting inflexion in India’s fiscal trajectory. The general government deficit is expected to remain above 10 percent of GDP until FY22,” report said while adding this will result in public debt to peak at almost 90 percent of GDP in FY21 before declining gradually thereafter.

According to the report, as growth resumes and the labour market prospects improve, poverty reduction is expected to return to its pre-pandemic trajectory. “The poverty rate (at the $1.90 line) is projected to return to pre-pandemic levels in FY22, falling within 6 and 9 percent, and fall further to between 4 and 7 percent by FY24 (FY 2023-24),” it said.

Talking about key conditions, the Bank noted that Indian economy was already slowing when the Covid-19 pandemic unfolded. After reaching 8.3 percent in FY17, growth decelerated to 4.0 percent in FY20. The slowdown was caused by a decline in private consumption growth and shocks to the financial sector (the collapse of a large non-bank finance institution), which compounded pre-existing weaknesses in investment. In response to the Covid-19 outbreak, the authorities implemented a nation-wide lockdown, which brought economic activity to a near standstill between April-June quarter of FY 21. The most impacted sub-sectors included aviation and tourism, hospitality, trade, and construction, but industrial activity was also deeply disrupted by mobility restrictions. Agriculture, however, was mostly unaffected.

According to the report, to mitigate the social and economic impacts of the Covid-19 induced crisis, the Reserve Bank of India (RBI) provided liquidity and other regulatory support (including forbearance measures), and the government increased spending on health and social protection through expenditure re-prioritising and fiscal expansion. Still, the sharp contraction in output between April and September 2020, is expected to have inflicted significant economic and social impacts.

Going forward, it mentioned, the main risks to the outlook include the materialisation of financial sector risks, that could compromise a recovery in private investment, and new waves of Covid-19 infections.

The spread of the virus and containment measures have severely disrupted supply and demand conditions. Monetary policy has been deployed aggressively and fiscal resources have been channeled to public health and social protection, but additional countercyclical measures will be needed, within a revised medium-term fiscal framework. “Despite measures to shield vulnerable households and firms, the trajectory of poverty reduction has slowed, if not reversed,” the report said.

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