According to Worldbank, India’s GDP to plunge by 9.6% in year 2020-21 (revised down since June from a 3.2% drop) due to the impact of lockdown imposed in the country to stop the spread of novel coronavirus.
The income shock is experienced by households and small urban service firms. World Bank’s South Asia Economic Focus report released Thursday. Growth is about to return to 5.4% in FY22, assuming Covid-related restrictions are completely lifted by 2022, but mostly reflecting base effects.
“The slowdown in India is expected to depress manufacturing and exporting industries, and the construction sector (which relies on Indian migrant workers) is also likely to experience a protracted slowdown due to a limited pipeline of public sector infrastructure projects,” the report said.
World Bank’s latest forecast from 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 warned that South Asia’s economies could end up worse than the forecast as the pandemic continues to surge, making foreign investors more wary, limiting governments’ ability to increase spending and putting more strain on banking systems already heavily burdened with bad loans.
Among other south Asian countries, Maldives is estimated to record a 19.5 per cent contraction and Sri Lanka is estimated to clock a 6.7 per cent contraction in calendar year 2020, it said. Pakistan’s economy is estimated to grow 0.5 per cent in 2020-21, Bangladesh at 1.6 per cent and Bhutan at 1.8 per cent (all estimates for July-June).
“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.”
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 now spreading in almost every state and across smaller towns, villages, and rural areas, the Bank said. “In some states with high infections, health care system capacity constraints are becoming a concern, especially in more rural areas,” it said.