India will witness a contraction of 9.6% in its gross domestic product (GDP) in financial year 2020 - 2021 (FY21), according to the World Bank. The international institution's South Asia Economic Outlook released earlier today attributes this fall to fallout of the national lockdown imposed across South Asia as a health restriction to combat the ongoing COVID-19 pandemic.
The contraction of 9.6% is a downward revision of the World Bank estimate by 6.4 percentage points, when it estimated India's FY21 contraction to be 3.2%.
"India's GDP is forecast to plunge in FY21 by 9.6 percent (revised down since June from a 3.2 percent drop), reflecting the impact of the national lockdown and the income shock experienced by households and small urban service firms", the report says. In FY22, India is estimated to grow at 5.4%.
A contractionery trend was confirmed in the Indian economy when the Ministry of Statistics and Program Implementation (MoSPI) reported that the economy had contracted 23.9% in the first quarter of the ongoing financial year, reported year-on-year. All sectors saw a collapse, with the exception of agriculture.
The government too has given indications of its own that India will see an economic contraction this year. On May 22, in a media interaction, the Governor of the Reserve Bank of India gave an indication that the economy would be in negative territory this fiscal. On August 27, Finance Minister Nirmala Sitharaman said that the economy would grow negatively this fiscal at the GST [Goods and Services Tax] Council. Both of stopped short of providing a numerical estimate.
India Badly Hit
According to this report, India will be among the worst hit economies this fiscal compared to South Asian countries, namely Pakistan, Bangladesh, Nepal, Bhutan. Maldives, Sri Lanka and Afghanistan.
India's estimate of a 9.6% contraction will be only surpassed by 19.5% contraction in the Maldivian economy this year (it's financial year is the calendar year) due to a total collapse in its tourism sector. The South Asian region will collectively see a 7.7% contraction.
The hit that awaits India will be accompanied by uncertainty on three fronts: duration of the pandemic, speed by which households will adjust to the lifting of the lockdown, and counter-cyclical fiscal policy. The latter is a measure by which the government aim to counter booms or recession by fiscal policy - in this case additional spending, tax cuts or economic packages.
India's public debt is estimated to be at 94% of GDP, and the general government fiscal deficit (of the central at state governments combined) will be more than 12% of GDP. The report also says that bad loans will rise in the banking system, from 8.5% in March 2020 to 12.5% in March 2021.
Three countries, however, are expect to grow, although anemically.
- Bangladesh - 2% in FY20 (estimate) and 1.6% in FY21 (forecast) [Their FY runs from July to June)
- Bhutan - 1.5% in FY20 (estimate) and 1.8% in FY21 (forecast) [Their FY runs from July to June]
- Nepal - 0.2% in FY20 (estimate) and 0.6% in FY21 (forecast) [Their FY runs from mid-July to mid-July]
India May Fall Up To 15%: Estimates
The World Bank's estimates of a 9.6% decline joins a legion of other research houses, rating agencies and banks who have all released forecasts of a near double-digit economic contraction for India. All of them are attributed to the lockdown and the and the unknowing environment that the pandemic brings.
Goldman Sachs estimates a contraction going up to 14.8%. The IMF, in its June edition of its World Economic Outlook, pegged India's GDP decline to be at 4.5%.
BOOM has covered a list of various houses and institutions that have put forward their own estimates, a snippet of which can be seen below.
The report can be read here.
Note: The tabular comparison in this story has been updated on October 14 to reflect the RBI's GDP estimates (read here) and released by the International Monetary Fund (IMF) in its October 2020 World Economic Outlook (read here).
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