World Bank GDP Projection for India

• 09 Oct 2021

Why in News

According to the World Bank, India’s economy, South Asia’s largest, is expected to grow by 8.3% in the fiscal year 2021-22.

• The South Asia economic focus report projects the region to grow by 7.1% in 2021 and 2022. It is a biannual economic update presenting recent economic developments and a near-term economic outlook for South Asia.
• Other Major reports of the World bank include Human Capital Index, World Development Report. Recently, it has decided to discontinue the practice of issuing ‘Doing Business reports’.

Key Points

• GDP Growth:
  
  • The projected growth (8.3%) is supported by an increase in public investment to bolster domestic demand and schemes like the Production Linked Incentive (PIL) to boost manufacturing.
  • India’s Gross Domestic Product (GDP) increased by 20.1% in the first quarter (April-June quarter) of financial year 2021-22 in the backdrop of “a significant base effect, limited damage to domestic demand and strong export growth”.
  • In the first quarter of financial year 2020-21, GDP of India contracted by 24.4% because of nationwide coronavirus lockdown.
    
    • The World Bank also observed that the disruption in India’s economy during the second wave of the pandemic was limited, compared to the first.
• On Economic Recovery:
  
  • Economic recovery across various sectors in India has been unequal.
  • Manufacturing & construction sectors recovered steadily in 2021 but low-skilled individuals, self-employed people, women and small firms were left behind.
  • The extent of recovery in the financial year 2021-’22 will depend on how fast household incomes recover and activity across informal sector & smaller firms normalises.
  • India’s economic prospects will be determined by its pace of vaccination against Covid-19 and successful implementation of agriculture & labour reforms.
• Base Effect:
  
  • Economic data such as ‘GDP growth rate’ are calculated on a year-on-year basis.
  • Thus, a low growth rate in the previous year leads to a low base for the number in the current year.
• Associated Risks:
  
  • Risks associated with the extent of recovery include- worsening of financial sector stress, slowdown in vaccination, higher inflation constraining monetary-policy support etc.
• Suggestions:
  
  • Medium Term Growth:
    
    • It is time to start rethinking policies about medium term growth by learning lessons from Covid-19 like crisis.
    • It's time to build social protection and adopt greener policies, because the next shock might be from the environment.
    • To reduce inequality, it is very important to integrate the informal sector and women into the economy. So that should be also an important element of the medium term growth strategy.
  • Need for Regulatory Experimentation:
    
    • The Bank called on South Asian countries to lower entry barriers in the services sector, creating more national and international competition while curbing the “emergence of new monopoly powers”; aiding labour market mobility and upgrading of skills; and enabling the absorption of these new services by households and firms.

Source: TH