According to the World Bank, India’s GDP growth is estimated to be in the range of 7.5% to 12.5% during FY 2021-22, GDP contraction For the FY 2020-21 ending on Wednesday is estimated at 8.5% as against a growth of 4% during FY 2019-20. The World Bank in its report titled ‘Sour Asia Economic Focus Spring 2021: South Asia Vaccinates’ reported the growth estimate for FY 22 to be dependent on the ongoing vaccination operations, and how quickly the world economy recovers.

According to the report as economic activity normalizes, domestically and in key export markets, the current account is expected to return to mild deficits and capital inflows are forecasted by sustained accommodative monetary policy and sufficient international liquidity conditions. India’s fiscal trajectory will experience a long-lasting inflection due to the Covid-19 shock. The general government deficit is expected to remain above 10% of GDP until FY22 causing the public debt to peak at almost 90% of GDP in FY21 before declining gradually thereafter. The poverty reduction is expected to return to its pre-pandemic trajectory as the growth recommences and the labor market likelihoods increase. The poverty rate is forecasted to return to pre-pandemic levels in FY22, falling within 6 and 9%, and is expected to fall further to between 4 and 7% by FY24. Discussing key conditions, the report observed that the Indian economy was already slowing down when the Covid-19 pandemic unfolded itself. The growth decelerated to 4.0% in FY20 after reaching 8.3% in FY17. The slowdown was caused by a slump in private consumption growth and shocks to the financial sector, which compounded pre-existing weaknesses in investment. , the government implemented a nationwide lockdown in response to the Covid-19 outbreak bringing economic activity to a near standstill between the months from April-June of FY 21. The various sub-sectors which were impacted included aviation and tourism, construction, hospitality, and trade. Industrial activity was deeply disrupted by mobility restrictions.

According to the report, for mitigating the social and economic impacts of the Covid-19 induced crisis, the RBI provided liquidity and other regulatory support, and the government increased spending on health and social protection through expenditure re-prioritizing and fiscal expansion. The sharp contraction of the output between April and September 2020, is expected to have inflicted significant economic and social impacts. The main risks to the forecast include the materialization of financial sector risks, which may yield recovery in private investment, and the new waves of Covid-19 infections. The spread of the virus and its containment measures have severely disrupted the supply and demand conditions. The monetary policy has been deployed aggressively including the financial resources which have been channeled to public health and social protection, but additional countercyclical measures are also expected within a revised medium-term fiscal framework.