The World Bank on Wednesday indicated further lowering of growth projection for India. It has also pitched for accelerating reforms key areas such as health, labour, land, skills and finance so that the country can come out stronger from the impact of the Covid-19 pandemic.
In May, World Bank had estimated the Indian economy to contract by 3.2 per cent during FY 2020-21. This is lower than many other agencies who had projected a deceleration of up to 5 per cent.
“A steeper contraction may be projected in the revised outlook that will be available in October 2020,” the Bank said in ‘The India Development Update,’ a publication which takes stock of the Indian economy.
The report said that the May projection was forecast with several downside risks. Further challenges have emerged in recent weeks which are likely to weigh on the prospects in the near term.
“These risks include the virus continuing to spread; a further deterioration in the global outlook; and additional strains projected on the financial sector,” the report said while mentioning that all these factors to play important role in further revision of growth outlook.
“While the Government of India, with the support of the Reserve Bank, is continuing to take action to limit the impact of the Covid-19 pandemic, there is a recognition of both the uncertainty of the nature of the economic revival globally and the emergence of opportunities opened by the current crisis,” said Junaid Ahmad, World Bank Country Director in India.
According to him, countries that invest in sectoral reforms — infrastructure, labour and land, human capital — and ensure that their national systems are connected to global value chains, are more capable of responding to uncertainties and are better placed to take advantage of global shifts.
“Investing in these areas will give India the ability to navigate these uncertainties and be more competitive as the world emerges from the pandemic,” he said.
Priority areas of reforms
The report expects that furthering reforms in agriculture, education, public sector, will help put the economy back on a 7-per-cent growth path. The report pitched for strengthening fiscal reforms which could include reassessing subsidies, aggressive generation of non-tax revenue and linking of repayment of new borrowings to disinvestment receipts.
The report also called for financial sector reforms that include financial sector stability, strengthening risk-based regulation and oversight of NBFCs., revisiting investment guidelines for institutional investors to crowd in long-term finance, mainstreaming fintech to reach firms faster and at a lower cost, scaling back the statutory requirement for state banks to provide liquidity, beside others.
“The recent liquidity and performance issues in the financial sector, exacerbated by the Covid-19 crisis, present policymakers with a strong reason — and an opportunity — to accelerate efforts towards building a more efficient, stable, and market-oriented financial system,” said co-authors of the report Poonam Gupta (Lead Economist, World Bank) and Dhruv Sharma (Senior Economist, World Bank).