Global Economic Prospects: World Bank | 10 Jun 2021

Why in News

Recently, the World Bank has released its June 2021 Global Economic Prospects where it has forecast India’s GDP growth to be 8.3% for the year 2021-22.

Key Points

  • GDP Estimate:
    • For India:
      • India's economy is expected to grow at 8.3% for Fiscal Year 2021-22, 7.5% for 2022-23 and 6.5% for 2023-24.
    • For World:
      • The world economy is expected to expand 5.6%, the fastest post-recession growth rate in eighty years.
      • However, global output will still be 2% below pre-pandemic projections by year-end.

  • Cause:
    • For FY 2020-21:
      • The projected growth compares to the worst ever contraction of 7.3% in FY 2020-21 and 4% expansion in 2019-20.
      • India’s recovery is being hampered by the largest outbreak of any country since the beginning of the pandemic.
    • For FY 2021-22:
      • The forecast for FY22 (8.3%) factors in expected economic damage from an enormous second Covid-19 wave and localised mobility restrictions since March 2021.
    • For FY 2022-23:
      • Growth is expected to slow to 7.5% as a result of the pandemic’s lingering effects on the financial position of households, companies and banks and possibly low levels of consumer confidence and heightened uncertainty around job and incomes.
  • Steps Taken by India:
    • The Reserve Bank of India (RBI) announced measures to provide liquidity to Micro, Small and Medium firms (MSMEs), and loosened regulatory requirements on the provisioning for non-performing assets.
    • Fiscal policy shifted in the FY 2021/22 budget toward higher expenditure targeted at healthcare and infrastructure to boost the post-pandemic recovery.
  • Suggestions:
    • Globally coordinated efforts are essential to accelerate vaccine distribution and debt relief, particularly for low-income countries.
    • As the health crisis eases, policymakers will need to address the pandemic’s lasting effects and take steps to spur green, resilient, and inclusive growth while safeguarding macroeconomic stability.
    • For low-income countries, policies focusing on scaling up social safety net programs, improving logistics and climate resilience of local food supply would be more helpful.

Key Terms

  • Gross Domestic Product
    • GDP is a measure of economic activity in a country. It is the total value of a country’s annual output of goods and services. It gives the economic output from the consumers’ side.
    • GDP = Private consumption + Gross investment + Government investment + Government spending + (exports-imports).
  • Recession and Depression
    • Recession: It is a macroeconomic term that refers to a slowdown or a massive contraction in economic activities for a long enough period, or it can be said that when a recession sustains for long enough, it is called a recession.
    • Depression: It is a deep and long-lasting period of negative economic growth, with output falling for at least 12 months and GDP falling by over 10% or it can be referred to as a severe and prolonged recession.
  • Fiscal Policy
    • Fiscal policy refers to the use of government spending and tax policies to influence economic conditions.
    • During a recession, the government may employ expansionary fiscal policy by lowering tax rates to increase aggregate demand and fuel economic growth.
    • In the face of mounting inflation and other expansionary symptoms, a government may pursue contractionary fiscal policy.

World Bank

  • About:
    • The Bretton Woods Conference held in 1944, created the International Bank for Reconstruction and Development (IBRD) along with the International Monetary Fund (IMF).
      • The IBRD later became the World Bank.
    • The World Bank Group is a unique global partnership of five institutions working for sustainable solutions that reduce poverty and build shared prosperity in developing countries.
  • Members:
    • It has 189 member countries. India is also a member country.
  • Major Reports:
  • Its Five Development Institutions:
    • International Bank for Reconstruction and Development (IBRD): Provides loans, credits, and grants.
    • International Development Association (IDA): Provides low- or no-interest loans to low-income countries.
    • International Finance Corporation (IFC): Provides investment, advice, and asset management to companies and governments.
    • Multilateral Guarantee Agency (MIGA): Insures lenders and investors against political risk such as war.
    • International Centre for the Settlement of Investment Disputes (ICSID): Settles investment-disputes between investors and countries.
      • India is not a member of ICSID.

Source: TH