India's economy battered by the COVID-19 pandemic is forecast to crater by 9.6 percent during the current financial year but can recover by 5.4 percent next financial year if there is widespread vaccination against the disease and it is contained, the World Bank reported on Tuesday, 5 January.
The Bank's Global Economic Prospects Report said that the optimistic forecast for 2021-22 "assumes that a vaccine will be distributed on a large scale in the region starting the second half of 2021 and that there is no widespread resurgence in infections".
About the economy's contraction, the report said, "In India, the pandemic hit the economy at a time when growth was already decelerating" and "the estimated contraction of the economy by 9.6 percent during 2020-21 reflects "a sharp drop in household spending and private investment".
The global economy, which contracted by 4.3 percent in 2020 is forecast to grow by 4 percent next year if “an initial Covid-19 vaccine rollout becomes widespread throughout the year”, the report stated.
Looking ahead, the report said that India's recovery would be constrained by the weak financial sector.
The 5.4 percent growth rate forecast for in 2021-22 – a "rebound from a low base" – would be "offset by muted private investment growth given (that the) financial sector weaknesses", the report said noting that "in the financial sector, non-performing loans were already high before the pandemic".
In the South Asian region, the Bank said that the economy overall fell by 6.7 percent in 2020 "reflecting the effects of the pandemic and nationwide lockdowns, particularly in Bangladesh and India".
Further, the report warned that "risks to the outlook are tilted to the downside", in the region.
However, "Activity rebounded in the second half of last year, led by industrial production, as initial stringent lockdowns were eased," it added.
Besides severe and longer-lasting coronavirus infection rates, the other risks include "financial and debt distress caused by an abrupt tightening of financing conditions or possible widespread corporate bankruptcies".
"Additional stress on domestic banks in the region could be triggered by the economic consequences of a more protracted recovery from the pandemic, which in turn could lead to a rise in bankruptcies and weaken the balance sheets of the banking and non-banking sectors," it added.
China, from where the COVID-19 pandemic spread, is expected to see its economy grow by 7.9 percent – the world’s fastest – this year after contracting 2 percent last year.
The report's forecast for the US economy is a 3.5 percent growth in 2021, after an estimated contraction of 3.6 percent in 2020.
(This story has been published in an arrangement with IANS.)
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