World Bank raises India growth projection by 4.7 percentage points for FY22

The World Bank has scaled up its projections for India’s economic growth by a massive 4.7 percentage points to 10.1 per cent for 2021-22 due to strong rebound in private consumption and investment growth. The Bank had pegged the GDP growth at 5.4 per cent for the country in its January report.

The Bank stated in a report, titled South Asia Economic Focus Spring 2021-South Asia Vaccinates that, “India, which comprises almost 80 percent of the region’s (south Asia) GDP, had a substantial revision to growth of 4.7 percentage points since January 2021, due to a strong rebound in private consumption and investment growth in the second and third quarters (July-December, 2020) of FY21”.

Considering the uncertainty caused by Covid cases in 2021-22, the Bank also gave a range of economic growth for India, at 7.5 per cent to 12.5 per cent, for FY22.

“Given the significant uncertainty pertaining to both epidemiological and policy developments, real GDP growth for FY’22 can range from 7.5 to 12.5 percent, depending on how the ongoing vaccination campaign proceeds, whether new restrictions to mobility are required, and how quickly the world economy recovers,” later it added.

At the higher end, the World Bank’s projection compared well with IMF which predicted GDP growth rate to be 11.5 per cent during FY22 and Economic Survey which forecast it at 11 per cent.

The multilateral agency also forecast the economy to decline by 8.5 per cent in FY21, higher than eight per cent projected by the National Statistical office.

It projected economic growth at 5.8 per cent for India during FY23 and said the economic expansion is projected to stabilise within a 6-7 per cent range over the medium term.

Hans Timmer, World Bank Chief Economist for the South Asia Region said that, ‘Rebound and there is uncertainty here about the numbers, but it basically means that over two years there was no growth in India and there might well have been over two years, a decline in per capita income. That’s such a difference with what India was accustomed to. And it means that there are still many parts of the economy that have not recovered or have not fared as well as they would have without a pandemic. There is a huge concern about the financial markets’.

Though public consumption will contribute positively, pent-up private demand is expected to fade by the end of 2021, as investment will pick up very gradually spurred by a large government capital expenditure push.

As economic activity normalizes, domestically and in key export markets, the India’s current account is expected to return to mild deficits (around one per cent in FY22 and FY23) and capital inflows to be buoyed by continued accommodative monetary policy and abundant international liquidity conditions.

The Covid-19 shock will lead to a long-lasting inflexion in India’s fiscal trajectory, the Bank said.