As stringent measures continue to be implemented to try to restrict the spread of the coronavirus across the country, economic activity in Asia’s third-largest economy continues to remain heavily curtailed. Thus, as per the World Bank, India’s economy will contract 3.2% in FY21.
The World Bank stated that the contraction will materialize this year, and in the following year, the economy will then recover to grow at 3.1%. Despite support from fiscal stimulus aided by a continuous monetary policy easing, balance sheet stress in the financial sector and contracting global growth continue to adversely impact activity. The government is trying to do the best that it can, including spending on health care, in-kind and cash transfers to lower-income households, wage support, deferral of tax payments, and loan and liquidity support for small businesses and financial institutions.
Almost all professional forecasters such as S&P, Fitch, Goldman Sachs, and UBS have predicted the Indian economy to contract by at least 5% in FY21. On Monday, India significantly reopened its economy. This included a resumption of operations at shopping malls, restaurants and hotels, under the first phase of the unlocking, following a prolonged lockdown that began on 25 March.
However, this unlocking came at a time when the country was witnessing a spike in coronavirus cases and had even surpassed Spain to reach the fifth spot among nations worst affected by the pandemic.
The crisis will leave long-lasting scars and pose a variety of global challenges.
Ceyla Pazarbasioglu, the vice president for equitable growth, finance, and institutions at the World Bank Group stated that our first order of business now is to address the issues of global health and economic emergency. It is up to the global community to unite to find ways to rebuild the economy and to aim at a robust recovery to prevent more and more people from falling into poverty and unemployment.
The baseline forecast assumes that the pandemic will recede sufficiently. This will make way for the lifting of domestic mitigation measures by mid-year in advanced economies, and sometime later in emerging market and developing economies. , As advanced economies grow at a rate of 3.9% and EMDEs at 4.6%, the global growth is forecasted to rebound to 4.2% in 2021.