World Bank predicts India’s GDP to jump to 12.5%

The World Bank has predicted that India’s real GDP growth for fiscal year 21/22 could range from 7.5 to 12.5%. It said India’s economy has bounced back from the COVID-19 pandemic and nationwide lockdown over the past year, but also warned that it’s not out of the woods yet.

In its latest South Asia Economic Focus report, the World Bank pointed out the fact that the economy was already slowing when the pandemic set in. “After reaching 8.3% in FY17, growth decelerated to 4.0% in FY20. The slowdown was caused by a decline in private consumption growth and shocks to the financial sector, the collapse of a large non-bank finance institution, which compounded pre-existing weaknesses in investment.

Given the significant uncertainty pertaining to both epidemiological and policy developments, the report states that the real GDP for FY21/22 can range from 7.5 to 12.5%, depending on how the ongoing vaccination campaign proceeds, whether new restrictions to mobility are required, and how quickly the world economy recovers.

Hans Timmer, World Bank chief economist for the South Asia Region, told PTI that it is amazing how far India has come compared to a year ago. “If you think a year ago, how deep the recession was, unprecedented declines in activity of 30 to 40%, no clarity on vaccines, huge uncertainty about the disease. And then if you compare it now, India is bouncing back, has opened up many of the activities, started vaccination and is leading in the production of vaccination.”

However, Timmer said the situation is still incredibly challenging, both on the pandemic side with the flare up that is being experienced now. “It is an enormous challenge to vaccinate everybody in India,” the official said. “Most of the people underestimate the challenge.”

In regards to economy, Timmer said that even with the rebound and there is uncertainty here about the numbers, but it basically means that over two years there was no growth in India and there might well have been over two years, a decline in per capita income. “That’s such a difference with what India was accustomed to. And it means that there are still many parts of the economy that have not recovered or have not fared as well as they would have without a pandemic. There is a huge concern about the financial markets.”

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The report also states that as economic activity normalizes, domestically and in key export markets, the current account is expected to return to mild deficits and capital inflows are projected by continued accommodative monetary policy and abundant international liquidity conditions.