World Bank keeps India's FY20-21 contraction forecast unchanged

The World Bank has forecast India's real gross domestic product growth to be 5.4 percent for fiscal year 2021-22, primarily due to the low base effect of the current year. However, unlike most other agencies, the multilateral organization has not upgraded its forecast for 2020-21, and still projects India's economy to contract by 9.6 percent this year.

"In India, growth is expected to recover to 5.4 percent in 2021-22, as the rebound from a low base is offset by muted private investment growth given financial sector weaknesses. The pandemic will likely lower potential growth, including through eroding human capital and investment growth," the World Bank said in its Global Economic Prospect report on January 5.

For the South Asia region, the agency projected a growth of 3.3 percent in calendar year 2021 and 3.8 percent in calendar year 2022.

After the much improved GDP numbers in the July-September quarter, when the economy contracted by 7.5 percent compared to 23.9 percent in the April-June quarter, dozens of agencies narrowed their contraction forecast for the full year 2020-21.

Among other multilateral agencies for example, the OECD now projects India's economy to contract 9.9 percent from 10.2 percent earlier, while the Asian Development Bank sees a contraction of 8 percent, from 9 percent earlier. The World Bank has kept its forecast unchanged.

"In India, the pandemic hit the economy at a time when growth was already decelerating. Output is projected to fall by 9.6 percent in FY20-21, reflecting a sharp drop in household spending and private investment," it said in its latest report

"In the financial sector, nonperforming loans were already at high levels before the pandemic and the economic downturn may lead to further insolvencies among financial and nonfinancial corporations. Indeed, the ratio of gross nonperforming loans to assets of commercial banks in India could be as high as 15 percent by March 2021," the World Bank said.