World Bank slashes India’s growth forecast to 8.3% for FY22 – Mint

The World Bank on Tuesday slashed its FY22 growth forecast for India to 8.3% from 10.1% estimated in April holding that recovery in Asia’s third largest economy is being hampered by the largest outbreak of coronavirus cases that any country has seen since the beginning of the pandemic.

“In India, an enormous second covid-19 wave is undermining the sharper-than-expected rebound in activity seen during the second half of FY2020/21, especially in services. With surging covid-19 cases, foot traffic around work and retail spaces has again slowed to more than one-third below pre-pandemic levels since March, in part due to greater restrictions on mobility,” World Bank said in its latest Global Economic Prospects report.

Economic activity in FY22 will benefit from policy support, including higher spending on infrastructure, rural development, and health, and a stronger-than expected recovery in services and manufacturing, the World Bank said. “Activity is expected to follow the same, yet less pronounced, collapse and recovery seen during the first wave. The pandemic will undermine consumption and investment as confidence remains depressed and balance sheets damaged. Growth in FY2022/23 is expected to slow to 7.5% reflecting lingering impacts of covid-19 on household, corporate and bank balance sheets; possibly low levels of consumer confidence; and heightened uncertainty on job and income prospects,” it added.

The World Bank said in India, the FY22 budget marked a significant policy shift toward higher expenditure targeted at health care and infrastructure to boost the post-pandemic recovery. “The government announced health-related spending would more than double and set out a revised medium-term fiscal path intended to address the economic legacy of the pandemic. Following deteriorating pandemic-related developments, the Reserve Bank of India announced further measures to support liquidity provision to micro, small, and medium firms and loosened regulatory requirements on the provisioning for nonperforming loans. The renewed outbreak, however, may require further targeted policy support to address the health and economic costs,” it added.

The Bank said domestic financial conditions are easier than they have been in decades in India. “These conditions may change, however, if rapid recoveries in advanced economies lead to tightening monetary policy in these economies before recoveries are entrenched in EMDEs, including those in SAR. An unexpected rise in global inflation from unprecedented advanced economy policy support may also reverse easy financing conditions. Domestically, high debt levels may create the conditions for borrowing costs to surge if expectations change abruptly” it cautioned.