Maintain reform momentum, says World Bank even as Indian economy faces uncertain future

According to the World Bank, fiscal deficit of the central government is likely to increase to 6.6 per cent of GDP in FY20/21 and is expected to remain elevated at 5.5 per cent in the following year. 

Published: 19th August 2020 08:45 PM  |   Last Updated: 19th August 2020 08:46 PM   |  A+A-

The World Bank building entrance

The World Bank building entrance (File | AFP)

By Express News Service

NEW DELHI: To recover from the Covid-19 triggered economic crises, India needs to continue implementing critical reforms in key areas such as health, labor, land, skills and finance, said World Bank's in its latest India Development Update report. These reforms, according to the World Bank, should aim at enhancing productivity of the Indian economy and spur private investments and exports. 

Junaid Ahmad, World Bank Country Director in India, "Countries that invest in sectoral reforms – infrastructure, labor and land, human capital - and ensure that their national systems are connected to the Global Value Chains, are more able to respond to uncertainties and are better placed to take advantage of any global shifts. Investing in these areas will give India the ability to navigate these uncertainties and be more competitive as the world emerges from the pandemic."

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The financial institution also projects a steeper contraction of India's economy than the 3.2 per cent it had forecasted previously for the current financial. 

"The outlook comes predicated with several downside risks. Further challenges have emerged in recent weeks which are likely to weigh on the prospects in the near term. These risks include the virus continuing to spread; a further deterioration in the global outlook; and additional strains projected on the financial sector. Keeping these factors in mind, a steeper contraction may be projected in the revised outlook that will be available in October 2020," the report said. 

According to the World Bank, fiscal deficit of the central government is likely to increase to 6.6 per cent of GDP in FY20/21 and is expected to remain elevated at 5.5 per cent in the following year. 

"Assuming that the states' deficit is contained within 3.5-4.5 per cent of GDP, the combined deficit could rise to around 11 per cent in FY20/21. While there is a significant level of uncertainty around the projections, the general government debt-to-GDP ratio is projected to peak at around 89 per cent in FY22/23 before gradually declining thereafter," it said. 

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The pandemic has hit India at a time when its economy had already been decelerating.

Defying a long-term accelerating path, real GDP growth moderated from 7.0 per cent in 2017-18 to 6.1 per cent in 2018-19 and 4.2 per cent in 2019-20. 

According to the World Bank, the outlook has now changed substantially, and the economy will likely contract in the current fiscal year. 

The economic impact of the pandemic will be felt through the following channels: (i) a direct decline in domestic demand and supply disruptions triggered by the containment measures, resulting in a near collapse in certain service activities such as trade, transport, tourism, and travel; (ii) a second round of consumption and investment slowdown, compounded by (and ultimately driving) distress in the financial sector and financial markets; (iii) a global economic slowdown and decline in trade, resulting in a smaller global export market and weaker remittances, and a retreat in capital flows amidst heightened risk aversion.


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