World Bank’s Global Economic Prospects Report predicts contraction of Indian economy

News: The World Bank has released the Global Economic Prospects report.

Facts:

• Global Economic Prospects Report: It is a World Bank Group flagship report that examines global economic developments and prospects, with a special focus on emerging markets and developing economies. It is issued twice a year, in January and June.

Key Takeaways from the Report:

• India: It is expected to grow at 5.4% in fiscal year 2021-22 and 5.2% in fiscal 2022-23 after an expected contraction of 9.6% in fiscal 2020-21.
  • Reason: India’s expected contraction in the is due to a sharp decline in household spending and private investment. There was severe income loss in the informal sector which accounts for 4/5ths of employment
• Globally: Global economic output is projected to grow by 4% in 2021 assuming widespread roll-out of a COVID-19 vaccine throughout the year. This projection is 5% below pre-pandemic levels.
• Emerging Market and developing economies (EMDEs): They are expected to grow at an average of 4.6% in 2021-22 reflecting the above average rebound in China (forecast at 7.9% and 5.2%, this year and next).
• Increase in Global Debt Levels: There has been a massive increase in global debt levels because of the pandemic with the South Asian region seeing the steepest increase. India’s government debt expected to increase by 17% of GDP while service output contracts over 9%.
• South Asia slowdown led by India: The South Asian region’s economy is expected to contract by 6.7 % in 2020 due to the pandemic. This was led by India’s deep recession where the economy was already weakened by the stress in non-bank financial corporations.

Recommendations:

• The key immediate policy priorities for countries should be limiting the spread of the virus, providing relief for vulnerable populations and overcoming vaccine-related challenges should be the key immediate policy priorities for countries.
• Countries should also foster resilience by safeguarding health and education, prioritising investments in digital technologies and green infrastructure, improving governance, and enhancing debt transparency.

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