The World Bank says the coronavirus pandemic and the ongoing lockdown in India will further decelerate the country’s slowing economy, and even undo its poverty alleviation efforts. While the federal government is weighing its options on extending the lockdown, which comes to an end on April 14, many state governments have already extended it to April 30.
In its report, “South Asia Economic Update: Impact of COVID-19,” it says the pandemic has aggravated the pre-existing risks to its economy, adding that the lockdown has disrupted supply chains and affected the manufacturing, hospitality and tourism sectors.
This has badly affected the future of India’s informal sector, which employs nearly 81% of workers. In fact, even the formal economy is dependent on the informal one for many of its goods and services.
India’s abrupt announcement of the lockdown on March 24 forced factories to close down and work to be halted at construction sites in the cities. This prompted hundreds of thousands of migrant workers to return to their home villages, many on foot.
“The Indian economy is expected to decelerate to 5% in 2020, and the projection is for a sharp growth deceleration in fiscal 2021 to 2.8% in a baseline scenario. The Covid-19 outbreak came at a time when India’s economy was already slowing, due to persistent financial sector weaknesses,” the report noted. If the lockdown gets extended across the country the economic fallout could be even worse.
The report has forecast that a revival in domestic investment is likely to be delayed given the enhanced risk aversion on a global scale, and renewed concerns about financial sector resilience. Growth is expected to rebound to 5% in fiscal 2022 as the impact of Covid-19 dissipates, and fiscal and monetary policy support pays off with a lag, it added.
Later in a conference call, the World Bank’s chief economist for South Asia, Hans Timmer, said India’s outlook is not good. He said the country should focus on containing the spread of the disease, and make sure that everybody has food.
The World Bank has joined hands with India to fight Covid-19 and approved a US$1-billion project. The first tranche has been released to bolster India’s healthcare sector and improve the network of testing facilities. The World Bank is also working with India on two additional operations that are expected to be launched soon.
The bank said the pandemic may hit South Asia’s “significant” gains in poverty alleviation. In its twice-a-year regional update, the bank said South Asian governments must ramp up action to curb the health emergency, protect their people, especially the poorest and most vulnerable, and set the stage for a fast economic recovery.
The number of confirmed coronavirus cases in India has crossed 9,000 and more than 280 people have lost their lives so far.
The latest World Bank report, “South Asia Economic Focus,” anticipates a sharp economic slump in each of the region’s eight countries, caused by the halting of economic activity, collapsing trade, and greater stress in the financial and banking sectors. The report also warned that the pandemic will reinforce inequality in the region and badly affect the informal workers with limited or no access to healthcare or a social safety net the hardest.