Washington: India's economy is estimated to contract by 9.6 per cent in the fiscal year 2020-21, reflecting a sharp drop in household spending and private investment, and the growth is expected to recover to 5.4 per cent in 2021, the World Bank said on Tuesday.
In its Global Economic Prospects report, the World Bank said that the informal sector, which accounts for four-fifths of employment, has been subject to severe income losses during the COVID-19 pandemic.
"In India, the pandemic hit the economy at a time when growth was already decelerating. The output is estimated to contract by 9.6 per cent in Fiscal Year 2020/21, reflecting a sharp drop in household spending and private investment, it said.
"In India, growth is expected to recover to 5.4 per cent in 2021, as the rebound from a low base is offset by muted private investment growth given financial sector weaknesses, the bank said.
The informal sector, which accounts for four-fifths of employment, has also been subject to severe income losses during the pandemic. Recent high-frequency data indicate that the services and manufacturing recovery are gaining momentum, the report said.
"In the financial sector, non-performing loans were already high before the pandemic," it said.
Global Economy Expected To Expand By 4% In 2021
As the COVID-19 vaccine started rolling out in many countries, the World Bank expects that the global economy will expand four per cent in 2021, but will still remain more than five per cent below its pre-pandemic trend.
"The global economy appears to be emerging from one of its deepest recessions and beginning a subdued recovery," World Bank President David Malpass said on Tuesday in a forward to the Global Economic Prospects report, according to which a recovery will likely be subdued, unless policy makers move decisively to tame the pandemic and implement investment-enhancing reforms.
Although the global economy is growing again after a 4.3 per cent contraction in 2020, the pandemic has caused a heavy toll of deaths and illness, plunged millions into poverty, and may depress economic activity and incomes for a prolonged period.
Top near-term policy priorities are controlling the spread of COVID-19 and ensuring rapid and widespread vaccine deployment. To support economic recovery, authorities also need to facilitate a re-investment cycle aimed at sustainable growth that is less dependent on government debt, the report said.
"While the global economy appears to have entered a subdued recovery, policy makers face formidable challenges - in public health, debt management, budget policies, central banking and structural reforms - as they try to ensure that this still fragile global recovery gains traction and sets a foundation for robust growth," said Malpass.
"To overcome the impacts of the pandemic and counter the investment headwind, there needs to be a major push to improve business environments, increase labour and product market flexibility, and strengthen transparency and governance," he said.
The collapse in global economic activity in 2020 is estimated to have been slightly less severe than previously projected, mainly due to shallower contractions in advanced economies and a more robust recovery in China.
In contrast, disruptions to activity in the majority of other emerging markets and developing economies were more acute than expected, the Bank said in its report.
"Financial fragilities in many of these countries, as the growth shock impacts vulnerable household and business balance sheets, will also need to be addressed, Vice President and World Bank Group Chief Economist Carmen Reinhart said.
According to the report, global growth is projected to moderate to 3.8 per cent in 2022, weighed down by the pandemic's lasting damage to potential growth. In particular, the impact of the pandemic on investment and human capital is expected to erode growth prospects in emerging market and developing economies (EMDEs) and set back key development goals.
The global recovery, which has been dampened in the near term by a resurgence of COVID-19 cases, is expected to strengthen over the forecast horizon as confidence, consumption, and trade gradually improve, supported by ongoing vaccination, the report said.
Although aggregate EMDE growth is envisioned to firm to an average of 4.6 per cent in 2021-22, the improvement largely reflects China's expected rebound. Minus China, the recovery across EMDEs is anticipated to be more muted, averaging 3.5 per cent in 2021-22, as the pandemic's lingering effects continue to weigh on consumption and investment, the World Bank said.
In his forward to the report, Malpass said that making the right investments now is vital both to support the recovery when it is urgently needed and foster resilience.
"Our response to the pandemic crisis today will shape our common future for years to come. We should seize the opportunity to lay the foundations for a durable, equitable, and sustainable global economy," he said.
In Pakistan, the recovery is expected to be subdued, with growth at 0.5 per cent in fiscal 2020/21. Growth is projected to be held back by continued fiscal consolidation pressures and service sector weakness, it said.
In the rest of South Asia, the economic impact of COVID-19 has been somewhat less severe but still significant. Economies that depend heavily on tourism and travel have been especially hard hit. That includes the Maldives, Nepal, and Sri Lanka, the report said.
"Regional economic activity is estimated to have contracted by 6.7 per cent in 2020, led by a deep recession in India, where the economy was already weakened before the pandemic by stress in non-bank financial corporations," the World Bank said.
In Bangladesh, which had been one of the fastest-growing emerging markets and developing economies prior to the pandemic, growth is estimated to have decelerated to two per cent in FY2019/20.
In Pakistan, growth is estimated to have contracted by 1.5 per cent in FY2019/20, reflecting the effects of localised COVID-19 containment measures as well as the impact of monetary and fiscal tightening prior to the outbreak, the bank said.
South Asia is projected to grow by 3.3 per cent in 2021.
"Weak growth prospects reflect a protracted recovery in incomes and employment, especially in the services sector, limited credit provisioning constrained by financial sector vulnerabilities, and muted fiscal policy support," it said.
The forecast assumes that a vaccine will be distributed on a large scale in the region starting the second half of 2021 and that there is no widespread resurgence in infections, it added.
(Lalit K Jha/PTI)