The World Bank has slashed India's GDP forecast for fiscal year 2021-22 to 8.3 per cent from 11.2 per cent predicted earlier, as the second COVID-19 wave hits India hard. The World Bank said economic activity will benefit from policy support, including higher spending on infrastructure, rural development, and health, and a stronger-than-expected recovery in services and manufacturing.
.@WorldBank’s latest Global Economic Prospects is now out! It finds that the global economy is expected to expand 5.6% in 2021, the fastest post-recession pace in 80 years, largely on strong rebounds from a few major economies. https://t.co/3Enn9hl0xn#WBGEP2021pic.twitter.com/VTta7O5ZFV— World Bank (@WorldBank) June 8, 2021
"Although the forecast has been revised up by 2.9 percentage points, this masks significant expected economic damage from an enormous second COVID-19 wave and localised mobility restrictions since March 2021," the report said.
In its forecast on South Asian economies, the World Bank said the Covid-19 pandemic will undermine consumption and investment in India as "confidence remains depressed and balance sheets damaged".
Consequently, the growth forecast for FY23 has also been cut to 7.5 per cent, reflecting lingering impacts of COVID-19 on the household, corporate and bank balance sheets; possibly low levels of consumer confidence; and heightened uncertainty on the job and income prospects.
The World Bank's GDP forecast is below the Reserve Bank of India's estimate of 9.5 per cent growth in FY22. RBI Governor Shaktikanta Das, in the monetary policy committee announcement on June 4, had revised the RBI's estimate of GDP growth in FY22 to 9.5 per cent from 10.5 per cent estimated earlier.
The report says the fiscal policy in India shifted in FY22 budget towards higher expenditure targeted at healthcare and infrastructure to boost post-pandemic recovery. However, the renewed outbreak may require further "targeted policy support" to address health and economic costs.
The RBI expects GDP to grow at 18.5 per cent in the first quarter, 7.9 per cent in the second quarter, 7.2 per cent in the third quarter, and 6.6 per cent in the fourth quarter of 2021-22. Most of the professional ratings agencies and prominent economists have slashed their GDP growth forecasts for FY22.
India's economy grew at 1.6 per cent in the fourth quarter of 2021-22, recording a slight pickup in GDP growth. In the full fiscal year, the economy shrunk by 7.3 per cent as COVID-19 pandemic ravaged the economy. The contraction in FY21 GDP was the worst in more than 40 years, the government data showed.
Among other Asian economies, Bangladesh's recovery is expected to be "gradual", with growth of 3.6 per cent in the fiscal year 2020/21, starting July, and 5.1 per cent in FY22 as private consumption, the main engine of growth, is supported by normalising activity, moderate inflation, and rising ready-made garment exports.
In Sri Lanka, the resurgence of COVID-19 cases, severe fiscal pressures, and depressed tourism are holding back the recovery, the report said. The forecast for Pakistan has been revised upon improving remittance inflows and a rebound in confidence, but the economy is expected to grow by only 1.3 per cent in FY21.