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India to witness severe economic slump, says World Bank

India to witness severe economic slump, says World Bank

Apr 12, 2020
03:31 pm

What's the story

The spread of COVID-19, and the disruption ensuing from it, is likely to cause a sharp economic slump for India and neighboring countries, the World Bank said on Sunday. According to the international lender, this fallout could be the worst growth performance for South Asia in the last four decades, with many nations going to a deep recession. Here's more about it.

Report

Severe economic disruption predicted in South Asia

In its biannual South Asia Economic Focus report, the World Bank forecasts severe economic slump for all South Asian countries, including India. It says that the region is expected to show a growth of 1.8%-2.8% this year, instead of the 6.3% projected six months ago, in the wake of halted economic activity, collapsed trade, and greater stress in financial/banking sectors due to COVID-19-led lockdowns.

Information

Entire region could witness negative growth in worst-case scenario

"That (1.8-2.8% growth) would be the region's worst performance in the last 40 years, with temporary contractions in all South Asian countries," the report said, noting that "in case of prolonged and broad national lockdowns,...the entire region would experience a negative growth rate this year."

India

India's economy will also decelerate

India, the biggest economy in the region, is estimated to show very little growth in the fiscal that started on April 1. Specifically, the GDP of the country, estimated to be in the range of 4.8% to 5% in the fiscal that ended in March 2020, is expected to decelerate to the range of 1.5% to 2.8% in the current FY 2020-21.

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What the World Bank said about India's situation

"The COVID-19 outbreak came at a time when India's economy was already slowing, due to persistent financial sector weaknesses," the World Bank said, noting that lockdown to prevent further spread has resulted in "supply and demand disruptions" that might lead growth deceleration to 2.8%.

Details

In FY 2021-2022, Indian economy expected to rebound to 5%

After the severe disruption seen in the current fiscal, things will start getting back to normal for India, at least. "Growth is expected to rebound to 5% in Fiscal 2022 (FY 2021-2022) as the impact of COVID-19 dissipates, and fiscal and monetary policy support pays off with a lag," the World Bank added in its report.

Quote

India should be prepared for rebound, says chief economist

"It is very important to prepare for a rebound and that means there should be a focus on temporary jobs programmes, especially at the local-levels... It is important to prevent bankruptcies especially of a small and medium-sized enterprise," said World Bank Chief Economist Hans Timmer.

Possibility

Future depends on how this contagion is contained

Whether India ends up on the lower or upper end of growth projections for the current and next fiscal depends largely on how it manages to deal with the contagion. If a major outbreak is avoided, the poor are protected, and the stage is set for economic recovery when the lockdown lifts, the Indian economy could end up in a better state than predicted.