India’s GDP is estimated to contract by 9.6 per cent in 2020-21, a sharp cut from the June forecast of 3.2 per cent contraction due to the impact of the national lockdown against the outbreak of the COVID-19 pandemic and the income shock experienced by households and small urban service firms, The World Bank said in its South Asia Economic Focus report released Thursday.
The Bank said that India’s growth is estimated to rebound 5.4 per cent in 2021-22, mainly reflecting base effects and assuming that COVID-related restrictions will be completely lifted by 2022.
“The slowdown in India is expected to depress manufacturing and exporting industries, and the construction sector (which relies on Indian migrant workers) is also likely to experience a protracted slowdown due to a limited pipeline of public sector infrastructure projects,” the report said.
The entire South Asia region is set to plunge into its worst-ever recession as the “devastating impacts” of COVID-19 on the region’s economies linger on, with regional growth estimated to contract by 7.7 percent in 2020, after topping 6 percent annually in the past five years.
South Asia’s growth is projected to rebound to 4.5 percent in 2021. Factoring in population growth, however, income-per-capita in the region will remain 6 percent below 2019 estimates, indicating that the expected rebound will not offset the lasting economic damage caused by the pandemic, the report said.
Among other south Asian countries, Maldives is estimated to record a 19.5 per cent contraction and Sri Lanka is estimated to clock a 6.7 per cent contraction in calendar year 2020, it said. Pakistan’s economy is estimated to grow 0.5 per cent in 2020-21, Bangladesh at 1.6 per cent and Bhutan at 1.8 per cent (all estimates for July-June).
Highlighting the difference in this pandemic-induced recession from previous recessions, The World Bank said that the earlier downturns were mainly due to falling investment and exports but this time, private consumption —traditionally the backbone of demand in South Asia and a core indicator of economic welfare — will decline by more than 10 percent, further spiking poverty rates. A decline in remittances is also expected to accelerate loss of livelihoods for the poorest in some countries.
“The collapse of South Asian economies during COVID-19 has been more brutal than anticipated, worst of all for small businesses and informal workers who suffer sudden job losses and vanishing wages,” said Hartwig Schafer, World Bank Vice President for the South Asia Region. “Immediate relief has dulled the impacts of the pandemic, but governments need to address the deep-seated vulnerabilities of their informal sectors through smart policies, and allocate their scarce resources wisely.”
Risk of rising poverty
The World Bank said that the earlier downturns were mainly due to falling investment and exports but this time, private consumption -traditionally the backbone of demand in South Asia and a core indicator of economic welfare - will decline by more than 10 per cent, further spiking poverty rates.
The number of recorded cases is still rising rapidly in India, Maldives and Nepal. While cases in India were initially concentrated in a few large and densely populated cities, COVID19 is now spreading in almost every state and across smaller towns, villages, and rural areas, the Bank said. “In some states with high infections, health care system capacity constraints are becoming a concern, especially in more rural areas,” it said.
While the poor have faced rising food prices and suffered severely, the COVID-19 crisis has dealt a further blow to many informal workers in the middle of the income distribution who experienced sharp drops in earnings, it said.
The Bank urged governments to design universal social protection as well as policies that support greater productivity, skills development, and human capital.
“COVID-19 will profoundly transform South Asia for years to come and leave lasting scars in its economies. But there is a silver lining toward resilient recovery: the pandemic could spur innovations that improve South Asia’s future participation in global value chains, as its comparative advantage in tech services and niche tourism will likely be in higher demand as the global economy becomes more digital,” Hans Timmer, World Bank Chief Economist for the South Asia Region said.
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