India’s economic growth, which is estimated to have slowed to 4.2% in financial year 2019/20, which ended in March, is projected to contract by 3.2% in 2020/21 when the impact of the coronavirus pandemic will largely hit, the World Bank said in a report.
The Indian government ordered a complete national lockdown in late March as the virus spread and raised fears of widespread infections and deaths in a country with the world’s second-biggest population.
The lockdown disrupted the economy like never before, shutting down businesses and projects all across the country and pushing India’s 1.3 billion people indoors for several weeks and nearly killing demand for goods and services.
A gradual re-opening has been taking place since last month and there are signs of the economy beginning to pick up, but the health scare continues as the number of infections and deaths has been steadily rising.
“Stringent measures to control the spread of the virus will heavily curtail activity, despite some support from fiscal and monetary stimulus. Spillovers from weaker global growth and balance sheet stress in the financial sector will also weigh on activity,” the Bank said.
It said risks to the outlook are heavily skewed to the downside.
“Despite later and initially smaller COVID-19 outbreaks relative to some other regions, cases have expanded rapidly in India, Pakistan, Afghanistan and Bangladesh. Besides the human toll, there is a risk that the pandemic will trigger a long-lasting rise in poverty, especially among the low-income countries of the region,” the Bank added.
It said the South Asian region has a high share of workers employed in
the informal sector, which adds to the health and economic challenges of dealing with the pandemic.
“Should supply disruptions give rise to sharp and pervasive rises in food prices, more people could face food insecurity,” the Bank warned.
A continuation of financial market disruptions globally could add pressure to vulnerable balance sheets of the financial sectors in large economies. Spillovers from major trading partners, if more severe than expected,
could weigh on economic activity; losses in supply chain linkages could lower medium-term growth prospects, it added.