World Bank widens GDP contraction forecast to 9.6%

Poverty reduction suffers setback; ‘continue key reforms to reverse virus impact’

The World Bank expects India’s economy to contract by 9.6% in 2020-21, revising its earlier estimate in June that output will shrink by just 3.2% amidst the COVID-19 pandemic. This revision reflects ‘the impact of the national lockdown and the income shock experienced by households and firms’, the Bank explained.

In its South Asia Economic Focus report released on Thursday, the Bank reckoned there will be a rebound to 5.4% growth in 2021-22, but largely due to base effects and hinging on assumptions that the pandemic-related restrictions are completely lifted by 2022.

India’s gross domestic product (GDP) contracted 23.9% in the first quarter of this year and official estimates for the second quarter are expected at end-November. The Bank mooted continuation of critical reforms to reverse the sudden and steep impacts of COVID-19.

“Monetary policy has been deployed aggressively and fiscal resources have been channelled to public health and social protection, but additional counter-cyclical measures will be needed, within a revised medium-term fiscal framework.

“Despite measures to shield vulnerable households and firms, the trajectory of poverty reduction has slowed, if not reversed,” the Bank said on India. It said significant disruptions to jobs likely boosted the poverty rate, with 2020 rates back to levels in 2016.

“Policy interventions have preserved the normal functioning of financial markets thus far. However, the demand slowdown could lead to rising loan delinquencies and risk aversion,” it noted.

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