World Bank ups FY22 GDP growth projection for India by 4.7 percentage pts

Pegs economic growth at 10.1%, also gives range of 7.5-12.5% given Covid-induced uncertainty

The World Bank has scaled up its projections for India's economic growth by a massive 4.7 percentage points to 10.1 per cent for 2021-22 due to strong rebound in private consumption and investment growth. The Bank had pegged the GDP growth at 5.4 per cent for the country in its January report.

"India, which comprises almost 80 percent of the region’s (south Asia) GDP, had a substantial revision to growth of 4.7 percentage points since January 2021, due to a strong rebound in private consumption and investment growth in the second and third quarters (July-December, 2020) of FY21," the Bank said in a report, titled South Asia Economic Focus Spring 2021-South Asia Vaccinates.

Considering the uncertainty caused by Covid cases in 2021-22, the Bank also gave a range of economic growth for India, at 7.5 per cent to 12.5 per cent, for FY22.  

"Given the significant uncertainty pertaining to both epidemiological and policy developments, real GDP growth for FY'22 can range from 7.5 to 12.5 percent, depending on how the ongoing vaccination campaign proceeds, whether new restrictions to mobility are required, and how quickly the world economy recovers," it said.

At the higher end, the World Bank's projection compared well with IMF which predicted GDP growth rate to be 11.5 per cent during FY22 and Economic Survey which forecast it at 11 per cent.

The multilateral agency also forecast the economy to decline by 8.5 per cent in FY21, higher than eight per cent projected by the National Statistical office.

It projected economic growth at 5.8 per cent for India during FY23 and said the economic expansion is projected to stabilise within a 6-7 per cent range over the medium term.

Hans Timmer, World Bank Chief Economist for the South Asia Region, told PTI that even with the rebound and there is uncertainty here about the numbers, but it basically means that over two years there was no growth in India and there might well have been over two years, a decline in per capita income.

“That's such a difference with what India was accustomed to. And it means that there are still many parts of the economy that have not recovered or have not fared as well as they would have without a pandemic. There is a huge concern about the financial markets,” Timmer said.

However, on a general note, he said,""It is amazing how far India has come compared to a year ago. If you think a year ago, how deep the recession was… unprecedented declines in activity of 30 to 40 per cent, no clarity about vaccines, huge uncertainty about the disease. And then if you compare it now, India is bouncing back, has opened up many of the activities, started vaccination and is leading in the production of vaccination.”

However, the situation is still incredibly challenging, both on the pandemic side with the flare up that is being experienced now. It is an enormous challenge to vaccinate everybody in India, he said.

“Most of the people underestimate the challenge,” he said.

Though public consumption will contribute positively, pent-up private demand is expected to fade by the end of 2021, as investment will pick up very gradually spurred by a large government capital expenditure push.

Negative spillovers from financial sector distress, especially as forbearance measures expire, remain a risk to the growth outlook. Nonetheless, the Reserve Bank of India’s liquidity stance is also expected to remain accommodative during the fiscal year ending in March 2022.

As economic activity normalizes, domestically and in key export markets, the India's current account is expected to return to mild deficits (around one per cent in FY22 and FY23) and capital inflows to be buoyed by continued accommodative monetary policy and abundant international liquidity conditions.

The Covid-19 shock will lead to a long-lasting inflexion in India’s fiscal trajectory, the Bank said.

"The general government deficit is expected to remain above 10 per cent of GDP until FY'22. As a result, public debt is projected to peak at almost 90 per cent of GDP in FY'21 before declining gradually thereafter," it said.

Poverty Reduction:

As growth resumes and the labor market prospects improve, poverty reduction is expected to return to its pre-pandemic trajectory, it said.

The poverty rate (at the $1.90 line) is projected to fall within  6 and 9 percent, and fall further to between 4 and 7

percent by FY'24.

The report said the poorer income groups in India, Bangladesh, and Pakistan suffer a greater fall in per capita consumption than the richer income groups do. Moreover, the income gap between the poorest 90 per cent of the population and the richest 10 per cent widened even further in India and Pakistan because of COVID-19 (by

13.2 percentage points in India and 7.7 percentage points in Pakistan).

Gender aspect:

Citing its own study, the World Bank said the share of employed  men and women from non-agricultural households in rural India dropped by 56 and 36 percentage points respectively in the immediate aftermath of the Covid-19 crisis.

"Initial evidence suggests that men returned to work earlier, which could be linked to norms that prioritize men," it said.

Citing another study, the Bank said in Indian districts with

higher intensity lockdowns, domestic violence complaints rose relative to other crimes against women, such as rape and assault, consistent with the overall reduction in mobility.

Formal versus informal  wage workers:

Informal wage workers in India were significantly more vulnerable to the loss of employment than formal workers were during the early phase of COVID-19. They also experienced a larger decline in income than formal workers did. But informal workers recovered faster than formal workers, and by July 2020, the decline in employment and income was not significantly different across informal and formal workers, the report said.