India’s economy will shrink by around 3.2 percent in the current fiscal, the World Bank told on Monday as it joined a chorus of international agencies that are forecasting a contraction in growth rate because of the coronavirus pandemic lockdown halting the economic activity. In its latest edition of the Global Economic Prospect, as the World Bank downgraded its projection of India by a massive negative 9 percent. Although, the Indian economy is expected to bounce back in 2021, as the World Bank told.
“In India, growth is estimated to have slowed to 4.2 percent in the fiscal year 2019/20 (the year ending in March-2020) and output is projected to contract by 3.2 percent in fiscal year 2020/21 when the impact of COVID-19 will largely materialize. “Stringent measures to restrict the spread of the virus, which heavily curtail short-term activity, will contribute to the contraction,” as it told in the Global Economic Prospect report. Crisil has said this would be the country’s fourth recession since Independence, first since liberalization, and perhaps the worst to date.
The World Bank told spillovers from the weaker global growth and also balance sheet stress in the financial sector would weigh on activity, despite of some support from the fiscal stimulus and continued monetary policy easing.
According to the report, the central bank has to purchase government bonds to further ease the financial conditions. The Indian govt has increased its spending on the healthcare to bolster the corona virus response, as wage support, in-kind and so also cash transfers to lower-income households, deferral of tax payments, as well as loan and liquidity support for small businesses, companies, and financial institutions. The growth rate of the Indian economy in fiscal 2017 was around 7 percent, that dropped to around 6.1 percent in fiscal 2018 and to around 4.2 percent in fiscal 2020, as it said.
The real impact of the corona virus situation and lockdown would be felt in the current fiscal that is 2020-2021 beginning April, the bank said as it forecast a negative growth rate of 3.2 percent. The World Bank has revised its January projection on India by a massive negative nine percent for the year 2020 and minus 3 percent for the year 2021. The contraction in the Indian economy will have a spillover impact in South Asia, that according to the bank’s projections. Growth in the region is projected to register a contraction of around -2.7 percent in 2020 and is marked by high uncertainty, the report said. Across the region, the pandemic situation mitigation measures will hinder consumption and also services activity, whereas high uncertainty about the pandemic situation will constrain private investment.