COVID-19 causes severe disruption to Indian economy, says World Bank

World Bank on Sunday said coronavirus outbreak has severely disrupted Indian ecomy, magnifying pre-existing risks to its outlook.

In its “South Asia Ecomic Update: Impact of COVID-19”, World Bank estimated Indian ecomy to decelerate to 5 per cent in 2020 and projected a sharp growth deceleration in fiscal 2021 to 2.8 per cent in a baseline scenario.

COVID-19 outbreak came at a time when India's ecomy was alrey slowing, due to persistent financial sector weaknesses, report said.

To contain it, government imposed a ‘lockdown’ with restrictions on mobility of goods and people.

“ resulting domestic supply and demand disruptions (on 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),” report said, ding that 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 impact of COVID-19 dissipates, and fiscal and monetary policy support pays off with a lag,” report said.

In a conference call with reporters, World Bank Chief Ecomist for South Asia Hans Timmer said India’s “outlook is t good.”

And if domestic lockdown is prolonged, n ecomic result can be much worse than what World Bank has in its baseline range of forecasts.

Among steps that India can take to dress this challenge, Timmer said first step is to focus on mitigating spre of disease, and to make sure that everybody has food.

“n, it is very important to prepare for a rebound and that means re should be a focus on temporary jobs programmes, especially at 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 longer run, this is really an opportunity to bring Indian ecomy on sustainable path t just fiscally, but also socially,” he said.

World Bank is working with India to mitigate challenge posed by COVID-19. It has approved USD1 billion to India, of which first tranche has alrey been released to deal with emergency in health care sector.

first tranche aims at delivering civilian diagstic equipment, put in place ditional capacity to deal with testing and make testing available that benefits entire population, said World Bank Vice President for South Asia Hartwig Schafer.

World Bank is also working with India on two ditional operations, which is anticipated to be rey in a matter of weeks.

se include, employment, banking and micro, small and medium enterprise sector.

In its report, World Bank said that COVID-19 outbreak has magnified pre-existing risks to India’s ecomic outlook.

government is undertaking measures to contain health and ecomic fallout, and RBI has begun providing calibrated support in form of policy rate cuts and regulatory forbearance.

“Given significant uncertainties, re is a wide confidence interval around baseline estimate. If a large-scale domestic contagion scenario is avoided, early policy measures payoff, and restrictions to 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 t contained, and nationwide shutdown is extended, growth projections could be revised downwards to 1.5 per cent, and fiscal slipps would be larger,” World bank said.