The World Bank Group logo is seen on the building of the global development lender in Washington. Photo: AFP / Eric Baradat

With India battling the second wave of Covid-19, the World Bank has slashed its growth forecast. It now expects the gross domestic product to grow 8.3% in the financial year 2021-22, down from its earlier estimate of 10.1%.

In its latest issue of Global Economic Prospects, the Washington-based global lender has expressed concern regarding India’s Covid-19 second wave. “India’s recovery is being hampered by the largest outbreak of any country since the beginning of the pandemic,” the World Bank noted. It said the current wave has undermined the sharp rebound in activity seen during the second half of Fiscal Year 2020/21.

The lender expects the Covid-19’s effect to spill over to the next fiscal year: “The pandemic will undermine consumption and investment as confidence remains depressed and balance sheets damaged. Growth in FY 2022/23 is expected to slow to 7.5%, reflecting lingering impacts of Covid-19 on the household, corporate and bank balance sheets; possibly low levels of consumer confidence; and heightened uncertainty over jobs and income prospects.”

The World Bank, however, lauded India for its policy shift in this year’s budget. “In India, fiscal policy shifted in the FY 2021/22 budget toward higher expenditure targeted at healthcare and infrastructure to boost the post-pandemic recovery. The renewed outbreak, however, may require further targeted policy support to address the health and economic costs,” it added.

The government had doubled health-related spending and annouced measures to address the economic setbacks caused by the pandemic. The Reserve Bank of India had also announced measures to support liquidity provision to micro, small and medium firms, and loosened regulatory requirements on the provisioning for non-performing loans.

Activity will benefit from policy support – including higher spending on infrastructure, rural development, and health – and a stronger-than expected recovery in services and manufacturing, the global lender said.

India’s gross domestic product contracted 7.3% for the just-concluded fiscal year (2020-21) and many analysts have already lowered growth expectations for the current year.

The Reserve Bank of India has stated that the country’s consumer confidence fell to an all-time low in May, owing to economic uncertainties caused by the pandemic. According to the bi-monthly survey, the current situation index fell to a record low of 48.5 in May from 53.1 in March. A minimum score of 100 is required to denote optimism.

“The current situation index, which has been in negative territory since July 2019, fell to a new all-time low as consumer perceptions on the general economic situation and employment scenario lowered further,” the central bank had said.

During April and May, India faced the deadly second wave of the Covid-19 pandemic and it overwhelmed the country’s healthcare sector. More than 300,000 cases were being reported on a daily basis, and by mid-May the figure had even crossed 400,000. However, after a gap of 63 days, India’s daily cases tally came down below 100,000 on Tuesday (86,498 cases).

India’s total caseload is now over 28 million and more than 350,000 people have died since the outbreak began last year. Even those figures may be low: Health experts warn that they are gross underestimates, and the actual number may be three to five times higher. They also claim that the current second wave is still active in villages, where health infrastructure is patchy and fewer Covid-19 deaths are recorded.