NEW DELHI: India’s GDP is forecast to plunge in 2020-21 by 9.6% (revised down since June from a 3.2% drop), reflecting the impact of the national lockdown and the income shock experienced by households and small urban service firms, the World Bank said in its latest assessment.
Growth is forecast to return to 5.4% in FY22, assuming Covid-related restrictions are completely lifted by 2022, but mostly reflecting base effects, the report on South Asia unveiled by the bank on Thursday said.
The latest forecast from the World Bank is in line with the assessment of other economists, multilateral agencies and investment banks which have estimated the economy to shrink between 5% to 15% in the current fiscal year due to the impact of the strict lockdown imposed to ward off the spread of the deadly Covid-19 pandemic. India’s GDP contracted 23.4% in the June quarter, the sharpest fall among global economies but several key economic indicators have pointed to some recovery as the economy unlocks and several sectors open up for business.
The report said South Asia is set to plunge into its worst-ever recession as the devastating impacts of Covid-19 on the region’s economies linger on, taking a disproportionate toll on informal workers and pushing millions into poverty.
The latest South Asia Economic Focus of the World Bank forecasts a sharper than expected economic slump across the region, with regional growth expected to contract by 7.7% in 2020, after topping 6% annually in the past five years.
The report said that in previous recessions, falling investment and exports led the downturn. This time is different, as private consumption, traditionally the backbone of demand in South Asia and a core indicator of economic welfare, will decline by more than 10 percent, further spiking poverty rates. A decline in remittances is also expected to accelerate loss of livelihoods for the poorest in some countries, the report said.
“The collapse of South Asian economies during Covid-19 has been more brutal than anticipated, worst of all for small businesses and informal workers who suffer sudden job losses and vanishing wages,” said Hartwig Schafer, World Bank Vice President for the South Asia Region. “Immediate relief has dulled the impacts of the pandemic, but governments need to address the deep-seated vulnerabilities of their informal sectors through smart policies, and allocate their scarce resources wisely.”
Three-quarters of all workers in South Asia depend on informal employment, especially in hospitality, retail trade, and transport—sectors most affected by containment measures. The report warns that informal workers and firms have little room to cope with unexpected shocks of the magnitude of Covid-19. While the poor have faced rising food prices and suffered severely, the Covid-19 crisis has dealt a further blow to many informal workers in the middle of the income distribution who experienced sharp drops in earnings.
Few informal workers are covered by social insurance, have savings or access to finance. The report urges governments to design universal social protection as well as policies that support greater productivity, skills development, and human capital. In that effort, securing international and domestic financing will help governments fund crucial programs to speed up recovery. In the long-term, digital technologies can play an essential role in creating new opportunities for informal workers, making South Asia more competitive and better integrated into markets—if countries improve digital access and support workers to take advantage of online platforms.
“Covid-19 will profoundly transform South Asia for years to come and leave lasting scars in its economies. But there is a silver lining toward resilient recovery: the pandemic could spur innovations that improve South Asia’s future participation in global value chains, as its comparative advantage in tech services and niche tourism will likely be in higher demand as the global economy becomes more digital,” said Hans Timmer, World Bank chief economist for the South Asia Region.