World Bank projects Indian economy to contract 3.2% in FY21

The World Bank on Monday projected India’s economy to contract 3.2% in FY21 as stringent measures to restrict the spread of the coronavirus pandemic have heavily curtailed activity in Asia’s third largest economy.

In its Global Economic Prospects report, World Bank said the contraction will largely materialize in the year to 31 March and the Indian economy will recover to grow at 3.1% in the following year.

“Spillovers from contracting global growth and balance sheet stress in the financial sector will also adversely impact activity, despite some support from fiscal stimulus and continued monetary policy easing,” it added. The multilateral lending institution took note of measures taken by the government, including spending on health care to bolster the covid-19 response, wage support, in-kind and cash transfers to lower-income households, deferral of tax payments, as well as loan and liquidity support for small businesses and financial institutions.

Most professional forecasters including Fitch, S&P, Goldman Sachs and UBS have projected the Indian economy to contract at least by 5% in FY21. India significantly reopened its economy on Monday with resumption of operations at shopping malls, hotels and restaurants under the first phase of the end of the prolonged lockdown that began on 25 March. However, this comes at a time the country has seen a spike in coronavirus cases. India has surpassed Spain to the fifth spot among nations worst affected by the pandemic.

The World Bank said the swift and massive shock of the coronavirus pandemic and shutdown measures to contain it will lead to a contraction of the global economy by 5.2% in 2020. “This is a deeply sobering outlook, with the crisis likely to leave long-lasting scars and pose major global challenges,” said Ceyla Pazarbasioglu, vice president for equitable growth, finance and institutions at World Bank Group. “Our first order of business is to address the global health and economic emergency. Beyond that, the global community must unite to find ways to rebuild as robust a recovery as possible to prevent more people from falling into poverty and unemployment.”

Under the baseline forecast—which assumes that the pandemic will recede sufficiently to allow the lifting of domestic mitigation measures by mid-year in advanced economies and a bit later in emerging market and developing economies (EMDEs) — global growth is forecast to rebound to 4.2% in 2021, as advanced economies grow 3.9% and EMDEs bounce back by 4.6%.