Home/ Markets / Mark To Market/  What does the World Bank’s forecast say about India’s recovery?

The second wave of covid-19 pandemic has been merciless to the nascent economic recovery of India, snuffing out the improvements in both business and consumer sentiment. In this context, the cut in growth forecast by the World Bank hardly comes as a surprise, especially since most economists and even the Reserve Bank of India (RBI) have already toned down theirs from earlier expectations.

But perhaps what stands out in the World Bank’s expectation is that it is on the pessimistic side compared with other market economists, and even RBI. The central bank expects gross domestic product (GDP) growth at 9.5%, while projections of most professional forecasters congregate around this level. The World Bank expects India’s GDP to grow by 8.3% in FY22, far lower than the 10.1% growth it had estimated just two months ago.

The World Bank’s pessimism comes from the rather slow pace of vaccination in the country, along with the surge in covid caseloads. Of course, even the revised numbers mask the severity of the pandemic’s impact on India. Perhaps what captures this is the fact that India’s output won’t reach pre-pandemic levels in 2022 as was expected earlier. The World Bank expects output to remain 9% below pre-pandemic levels for the entire region of South Asia while India may also see a similar trend. The full recovery from the pandemic’s damage is now pushed by yet another year, to perhaps 2023. Note that India’s economy was growing at its slowest pace just before the pandemic. India needs to grow by at least 8% every year to ensure adequate job creation for its large working population.

The bank has also flagged other risks while noting the significant policy support from both fiscal and monetary side. A fractured banking system with large bad loan assets would mean that credit growth won’t revive to a large extent. “The pandemic will undermine consumption and investment as confidence remains depressed and balance sheets damaged," it said in its report.

It has another warning, too. “Going forward, asset quality and bank profitability may worsen, as temporary forbearance measures are removed or renewed outbreaks damage balance sheets, undermining credit and investment growth in these economies," World Bank said.

Ergo, the economic growth would slow further to 7.5% in FY23, according to the World Bank. The upshot is that even as India struggles to reduce the pain from the second wave, the scars of the pandemic would be visible for a long time.

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Updated: 09 Jun 2021, 02:57 PM IST
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