Washington: The World Bank on Sunday said the coronavirus outbreak has severely disrupted the Indian economy, magnifying pre-existing risks to its outlook.
In its South Asia Economic Update: Impact of COVID-19, the World Bank said India's economy, the region's biggest, is expected to grow 1.5% to 2.8% in the fiscal year that started on April 1. It has also estimated that the economy will grow 4.8% to 5% in the fiscal year that ended on March 31.
The COVID-19 outbreak came at a time when India's economy was already slowing, due to persistent financial sector weaknesses, the report said.
To contain it, the government imposed a lockdown' with restrictions on mobility of goods and people.
The resulting domestic supply and demand disruptions (on the back of weak external demand) are expected to result in a sharp growth deceleration in FY21 to 2.8 percent in a baseline scenario (an estimate subject to wide confidence intervals), the report said, adding that the services sector will be particularly impacted.
A revival in domestic investment is likely to be delayed given enhanced risk aversion on a global scale, and renewed concerns about financial sector resilience.
Growth is expected to rebound to 5.0 per cent in fiscal 2022 as the impact of COVID-19 dissipates, and fiscal and monetary policy support pays off with a lag, the report said.
'Not good'
In a conference call with reporters, World Bank Chief Economist for South Asia Hans Timmer said India's outlook is not good.
And if the domestic lockdown is prolonged, then the economic result can be much worse than what the World Bank has in its baseline range of forecasts.
Among the steps that India can take to address this challenge, Timmer said the first step is to focus on mitigating the spread of the disease, and to make sure that everybody has food.
Then, it is very important to prepare for a rebound and that means there should be a focus on temporary jobs programmes, especially at the local levels. Those initiatives should be supported. And it is important to prevent bankruptcies especially of a small and medium sized enterprise, Timmer said in response to a question.
In the longer run, this is really an opportunity to bring the Indian economy on sustainable path not just fiscally, but also socially, he said.
WB assisting India
The World Bank is working with India to mitigate the challenge posed by COVID-19. It has approved $1 billion to India, of which the first tranche has already been released to deal with the emergency in the health care sector.
The first tranche aims at delivering civilian diagnostic equipment, put in place additional capacity to deal with testing and make testing available that benefits the entire population, said World Bank Vice President for South Asia Hartwig Schafer.
The World Bank is also working with India on two additional operations, which is anticipated to be ready in a matter of weeks.
These include, employment, banking and micro, small and medium enterprise sector.
In its report, the World Bank said that the COVID-19 outbreak has magnified pre-existing risks to India's economic outlook.
The government is undertaking measures to contain the health and economic fallout, and the RBI has begun providing calibrated support in the form of policy rate cuts and regulatory forbearance.
Given significant uncertainties, there is a wide confidence interval around the baseline estimate. If a large-scale domestic contagion scenario is avoided, early policy measures payoff, and restrictions to the mobility of goods and people can be lifted swiftly, an upside scenario could materialize in FY21, with growth around four per cent, it said.
However, if domestic contagion is not contained, and the nationwide shutdown is extended, growth projections could be revised downwards to 1.5 per cent, and fiscal slippages would be larger, the World bank said.
Worst economic slump in South Asia in 40 years
South Asian countries are likely to record their worst growth performance in four decades this year due to the coronavirus outbreak, the World Bank said on Sunday.
The South Asian region, comprising eight countries, is likely to show economic growth of 1.8% to 2.8% this year, the World Bank said in its South Asia Economic Focus report, well down from the 6.3% it projected six months ago.
"The green shoots of a rebound that were observable at the end of 2019 have been overtaken by the negative impacts of the global crisis," the World Bank report said.
Other than India, the World Bank forecast that Sri Lanka, Nepal, Bhutan and Bangladesh will also see sharp falls in economic growth.
Three other countries - Pakistan, Afghanistan and the Maldives - are expected to fall into recession, the World Bank said in the report, which was based on country-level data available as of April 7.
Measures taken to counter the coronavirus have disrupted supply chains across South Asia, which has recorded more than 13,000 cases so far - still lower than many parts of the world.
In the event of prolonged and broad national lockdowns, the report warned of a worst-case scenario in which the entire region would experience an economic contraction this year.
To minimize short-term economic pain, the Bank called for countries in the region to announce more fiscal and monetary steps to support unemployed migrant workers, as well as debt relief for businesses and individuals.