Moneycontrol PRO
Upcoming Event:Super25 3.0- India’s Largest Online Stock Traders Conference brought to you by Moneycontrol Pro & Espresso

India economy to contract by 3.2% in FY21: World Bank

The World Bank revised its January projection on India by a massive -9% for 2020 and -3% for 2021.

June 09, 2020 / 02:19 PM IST

India's economy will shrink by 3.2 percent in the current fiscal, the World Bank said on Monday as it joined a chorus of international agencies that are forecasting a contraction in growth rate due to the coronavirus lockdown halting economic activity.

The Washington-based multilateral lender said that the COVID-19 pandemic and the multi-phased lockdown imposed to curb its spread has resulted in a devastating blow to the Indian economy.

In its latest edition of the Global Economic Prospect, the World Bank downgraded its projection of India by a massive negative nine percent.

However, the Indian economy is expected to bounce back in 2021, the World Bank said.

"In India, growth is estimated to have slowed to 4.2 percent in the fiscal year 2019/20 (the year ending in March-2020) and output is projected to contract by 3.2 percent in fiscal year 2020/21, when the impact of COVID-19 will largely materialise.


COVID-19 Vaccine

Frequently Asked Questions

View more
How does a vaccine work?

A vaccine works by mimicking a natural infection. A vaccine not only induces immune response to protect people from any future COVID-19 infection, but also helps quickly build herd immunity to put an end to the pandemic. Herd immunity occurs when a sufficient percentage of a population becomes immune to a disease, making the spread of disease from person to person unlikely. The good news is that SARS-CoV-2 virus has been fairly stable, which increases the viability of a vaccine.

How many types of vaccines are there?

There are broadly four types of vaccine — one, a vaccine based on the whole virus (this could be either inactivated, or an attenuated [weakened] virus vaccine); two, a non-replicating viral vector vaccine that uses a benign virus as vector that carries the antigen of SARS-CoV; three, nucleic-acid vaccines that have genetic material like DNA and RNA of antigens like spike protein given to a person, helping human cells decode genetic material and produce the vaccine; and four, protein subunit vaccine wherein the recombinant proteins of SARS-COV-2 along with an adjuvant (booster) is given as a vaccine.

What does it take to develop a vaccine of this kind?

Vaccine development is a long, complex process. Unlike drugs that are given to people with a diseased, vaccines are given to healthy people and also vulnerable sections such as children, pregnant women and the elderly. So rigorous tests are compulsory. History says that the fastest time it took to develop a vaccine is five years, but it usually takes double or sometimes triple that time.

View more

"Stringent measures to restrict the spread of the virus, which heavily curtail short-term activity, will contribute to the contraction," it said in the Global Economic Prospect report.

International rating agencies like Moody's Investors Service, Fitch Rating and S&P Global Ratings have all predicted a 4-5 percent contraction in India's economic growth rate during April 2020 to March 2021 fiscal. Crisil has said this would be the country's fourth recession since Independence, first since liberalisation, and perhaps the worst to date.

The World Bank said spillovers from the weaker global growth and balance sheet stress in the financial sector will also weigh on activity, despite some support from the fiscal stimulus and continued monetary policy easing.

According to the report, the central bank has been purchasing government bonds to further ease the financial conditions. The Indian government has also increased its spending on healthcare 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.

The growth rate of the Indian economy in fiscal 2017 was seven percent, which dropped to 6.1 percent in fiscal 2018 and to 4.2 percent in fiscal 2020, it said.

The real impact of the COVID-19 and lockdown would be felt in the current fiscal (2020-21) beginning April, the bank said as it forecast a negative growth rate of 3.2 percent.

The World Bank revised its January projection on India by a massive negative nine percent for the year 2020 and minus three percent for the year 2021.

The contraction in the Indian economy will have a spillover impact in South Asia, according to the bank's projections.

Growth in the region is projected to register a contraction of -2.7 percent in 2020 and is marked by high uncertainty, the report said.

Across the region, the pandemic mitigation measures will severely hinder consumption and services activity, while high uncertainty about the pandemic will constrain private investment.

The sheer depth of global contractionary activity in the current environment will also weigh substantially on South Asian regional activity, despite relatively more modest trade linkages with the advanced economies than other EMDE (Emerging Market and Developing Economies) regions.

Despite the relatively low number of reported cases per capita, COVID-19 infections are still rising in several economies in the region. As a result, the outlook is highly uncertain and subject to large downside risks, the bank said.

Pakistan and Afghanistan are both projected to experience contractions in 2020. The mitigation measures imposed in these countries are expected to weigh heavily on private consumption, contributing to output contractions of -2.6 percent and -5.5 percent respectively, it said, adding that key labor-intensive export sectors like textiles are expected to contract sharply and subsequently recover slowly.

Bangladesh and Nepal are projected to experience substantial decelerations in fiscal year 2019/20. In Bangladesh, growth is expected to slow to 1.6 percent, as the recovery in industrial production is reversed by COVID-19-related disruptions such as mitigation measures and global exports plunge, and as remittances fall.

In Nepal, growth is projected to decline to 1.8 percent largely due to the same factors, in addition to a drop in tourism (more than one-third of which are from China and India).

A sharp decline in tourism is also expected to weigh on activity in Bhutan and Sri Lanka, and even more so in the Maldives, it added.

India is the fifth worst-hit nation by the COVID-19 pandemic after the US, Brazil, Russia and the UK, according to Johns Hopkins University data.

The number of active novel coronavirus cases in India stands at 1,25,381 while 1,24,094 people have recovered and one patient has migrated. The contagion has so far killed 7,135 people in the country.

The Indian government announced a nationwide lockdown in March to contain the spread of the coronavirus and extended it in phases.

From June 8, the government has announced a calibrated exit strategy under which more economic activities will be allowed across the country. It is the first of the three-phase plan for reopening of prohibited activities in non-containment zones with a stringent set of Standard Operating Procedures which will be in place till June 30.

Follow our full coverage of the coronavirus pandemic here.

Download your money calendar for 2022-23 here and keep your dates with your moneybox, investments, taxes

first published: Jun 8, 2020 08:46 pm
ISO 27001 - BSI Assurance Mark