Indian Economy News

India expected to grow by 8.3% in 2021-22: World Bank

Backed by an increase in public investment and incentives to boost production, the Indian economy is expected to grow 8.3% in fiscal year 2021-22, less than the previous forecast earlier this year, ahead of that the country was hit by the second wave of the COVID-19 pandemic, the World Bank stated in its latest report.

The World Bank's chief economist for the South Asia region, Mr. Hans Timmer, told PTI that if you look at the high-frequency data, you can see that the recovery has been paused due to the second wave of the COVID-19 pandemic and some experts are suggesting recovery actually declined briefly.

We project 8.3% (growth rate of the Indian economy) for this financial year, which is less than we had forecast at the beginning of the year before the health crisis caused by the second wave.

It may not sound like a big deal given the sharp downturn in the economy last year, but in my opinion, given the violent second wave and the severity of the health crisis, it's very positive news, he said.

On March 31, the World Bank stated India's real GDP growth for fiscal year 21/22 could range from 7.5 to 12.5% in its latest South Asia Economic Focus report published ahead of the annual Spring meeting of the World Bank and the International Monetary Fund (IMF).

In April-May, India battled the second wave of the deadly coronavirus pandemic, with > 300,000 new cases daily, disrupting hospitals and health systems due to lack of medical oxygen and beds.

What is remarkable and positive about this number is, according to Mr. Timmer, that the breakout was short-lived, and the economy was not as affected as the previous year.

That's how we came up with 8.3% growth, he added.

We continue to think that the situation is very insecure internally and sometimes externally. We continue to use a very wide range of possible outcomes for the Indian economy, the further we go in the current year, the less uncertainty it is.

But this range that we are using is 7.5-12.5%, we have been doing this since the pandemic started, and now you must conclude that we are at the lower end of that range, but that is totally due to the second wave in my view, Mr. Timmer added.

This has mitigated some of the effects in vulnerable areas in India. Now is the time to change course and focus on medium-term growth, he said, adding that India had already made some reforms in that direction during the crisis.

He noted that the labor and agrarian reforms are still being discussed and said that they go in a direction that the bank believes is necessary.

Parts of the economy open, where potential is untapped, he said.

Mr. Timmer said he was particularly interested in labor reforms that are trying to create funds to build social protection systems, not only for people in the formal sector, but also for informal workers and migrant workers.

We have long advocated for a more universal social protection system, he said.

India has had many short-term relief efforts, but it is not sustainable. You need to set up a robust system that covers most of India. These reforms go in that direction. At the same time, there is still a lot to do, Mr. Timmer said.

One of the main focuses of the latest World Bank report is to unlock the potential of the service sector, where it is possible to make services the engine of development in India, which is still highly regulated and highly protected from international competition.

The most recent South Asia Economic Focus, entitled ‘Shifting Gears: Digitization and Services-Led Development’, forecasts growth of 7.1% in the region in 2021 and 2022.

While year-on-year growth in the region remains strong, although from very low levels in 2020, the recovery has been mixed across countries and sectors.

South Asia's average annual growth is projected to be 3.4% compared to 2020-23, 3% points less than in the four years before the pandemic.

The economy of India, the largest in South Asia, is expected to grow 8.3% in fiscal year 2021-22, aided by increased public investment and incentives to stimulate production.

In Bangladesh, the ongoing recovery in exports and consumption will help drive growth rates to 6.4% in fiscal year 2021-22. In the Maldives, GDP is expected to grow 22.3% in 2021 as tourism figures recover, the bank said in a report.

The pandemic had a profound impact on the South Asian economy. Going forward, much will depend on the speed of vaccination, the possible emergence of new COVID variants and a significant slowdown in global growth dynamics, said Mr. Hartwig Schäfer, World Bank Vice President for the South Asia region.

While a short-term recovery is important, policymakers must also seize the opportunity to address deep-rooted challenges and embark on a green, resilient and inclusive development path, it said in a statement.

COVID-19 has left long-term scars on the region's economy, the effects of which may last well into the recovery.

Many countries have experienced lower investment flows, supply chain disruptions and setbacks in human capital accumulation, and significant increases in debt.

It is estimated that the pandemic left between 48 and 59 million poor people in the South Asia in 2021, it added.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.