The World Bank on Tuesday cut its FY22 growth forecast for India to 8.3% from 10.1% estimated earlier in April due to the crippling impact of the second wave of the coronavirus.
The Washington-based global lender projected a 7.5% growth in FY23 and a 6.5% growth in FY24.
In its latest Global Economic Prospects report, the World Bank said an enormous second Covid-19 wave in India is undermining the sharper-than-expected rebound in activity seen during the second half of FY21, especially in services.
"India's recovery is being hampered by the largest outbreak of any country since the beginning of the pandemic," it said.
India saw its worst ever contraction of 7.3% in the fiscal year ended 31 March 2021 and 4% expansion in 2019-20.
In its report, the multilateral lending agency said that the global economy is set to expand by 5.6% in 2021 - its strongest post-recession pace in 80 years.
"For India, GDP in fiscal year 2021/22 starting from April 2021 is expected to expand 8.3%," it said.
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.
