WORLD BANK SLASHES INDIA’S GROWTH RATE VIJAYALAKSHMI RAJU LAW CRITIQUE Wed, Apr 15, 2020, at ,12:34 PM India and other South Asian countries are likely to record their worst growth performance in four decades this year due to the coronavirus outbreak, the World Bank said on April 12. The South Asian region, comprising eight countries, is likely to show economic growth of 1.8 per cent to 2.8 per cent this year, the World Bank said in its South Asia Economic Focus report, well down from the 6.3 percent it projected six months ago. India’s economy, the region’s biggest, is expected to grow 1.5 per cent to 2.8 per cent in the fiscal year that started on April 1. The World Bank has estimated it will grow 4.8 per cent to 5 per cent in the fiscal year that ended on March 31. Other than India, the World Bank forecast that Sri Lanka, Nepal, Bhutan and Bangladesh will also see sharp falls in economic growth. Three other countries — Pakistan, Afghanistan and the Maldives — are expected to fall into recession, the World Bank said in the report. MAIN CHALLENGES FOR INDIA: “The green shoots of a rebound that were observable at the end of 2019 have been overtaken by the negative impacts of the global crisis,” the World Bank report said. The COVID-19 outbreak came at a time when India’s economy was already slowing due to persistent financial sector weaknesses, the report said. To contain it, the government imposed a lockdown, shutting factories and businesses, suspending flights, stopping trains and restricting mobility of goods and people. “The resulting domestic supply and demand disruptions (on the back of weak external demand) are expected to result in a sharp growth deceleration in FY21 (April 2020 to March 2021),” it said, adding that the 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. India has set aside just over 1 percent of GDP for programmes to increase health sector spending and compensate the unemployed, with the bulk of the money going towards cash transfers, free food and gas cylinders, and interest-free loans. Other agencies have made a similar forecast The World Bank joins a chorus of international agencies that have made a similar cut in growth estimates in recent days on concerns about the COVID-19 outbreak. The Asian Development Bank (ADB) sees India’s economic growth slipping to 4 per cent in the current fiscal, while S&P Global Ratings has further slashed its GDP growth forecast for the country to 3.5 per cent from a previous downgrade of 5.2 per cent. Fitch Ratings puts its estimate for India growth at 2 per cent, while India Ratings & Research has revised its FY21 forecast to 3.6 per cent from 5.5 percent earlier. Moody’s Investors Service has slashed its estimate of India’s GDP growth during the 2020 calendar year to 2.5 per cent, from an earlier estimate of 5.3 per cent. THE WAY FORWARD: World Bank chief economist for South Asia Hans Timmer said India’s “outlook is not good”. Among the steps that India can take to address this challenge, Timmer said the first is to focus on mitigating the spread of the disease, and to make sure that everybody has food. “Then, it is very important to prepare for a rebound and that means there should be a focus on temporary jobs programmes, especially at the 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 the longer run, this is really an opportunity to bring the Indian economy on a sustainable path not just fiscally, but also socially,” he said. The World Bank is working with India to mitigate the challenge posed by COVID-19. It has approved $1 billion to India, of which the first tranche has already been released to deal with the emergency in the health care sector. The first tranche aims at delivering civilian diagnostic equipment, put in place additional capacity to deal with testing and make testing available that benefits the entire population, said Hartwig Schafer, World Bank vice president for South Asia.