Is the World Bank which has projected 8.3 per cent growth rate for India being too conservative? Analysts seem to think so.
Even as the World Bank recently slashed India’s growth projections for the current financial year to 8.3 per cent from an earlier 10.1 per cent, several policymakers and economists said that this was more on a conservative side and could be revised upward in the coming months. In fact, according to the Reserve Bank of India’s projection, India is set to register a 9.5 per cent growth rate in 2021-22. Moody's Investors Service too projected a growth rate of 9.3 per cent growth in 2021-22.
While the World Bank in its Global Economic Prospects said that India's recovery is being hampered by the largest outbreak of any country since the beginning of the pandemic, policymakers said that the impact of the second wave and the subsequent lockdowns imposed by several state governments could be temporary.
India, which witnessed a brutal second wave of Covid 19, has however managed to contain the spread of the infection. If the trend continues and the pace of vaccination picks up, the country’s growth rate could be higher than the current estimates, analysts said.
Though India’s economic growth contracted by 7.3 per cent in 2020-21, economic activities have started resuming now that the daily Covid cases have significantly come down.
“Clearly due to lingering uncertainties, which we face today the world over, it is difficult to project growth rates, though even as over 8 per cent India will be one of the fastest growing economies in the world. Most think tanks and ratings agencies are being able to assess the impact of the shock but assessing the future buoyancy is becoming difficult for them due to the changing dynamics,” Subhomoy Bhattacharjee, Senior Adjunct Fellow at RIS (Research and Information System for Developing Countries) told India Narrative.
The earlier growth projections were made based on the previous year's fourth quarter economic indicators and the Covid 19 pandemic situation at that time time but with the sudden second wave hitting the country hard in May, the dynamics changed with new challenges leading to lowering of projections.
EY India’s chief policy adviser DK Srivastava pointed out that the pace of vaccination will be critical. “India’s growth trajectory will not be dented much if we can avoid another wave as the economic parameters will depend almost entirely on the Covid 19 situation.
Given this, we must focus on the vaccination exercise,” Srivastava said.
According to a recent report in the Financial Times, global investors are betting that the worst of India’s catastrophic second coronavirus wave has passed. “The demand for Indian stocks highlights relief among investors that the second wave appears to have peaked,” the report said.
“If the current trend continues, there is a good chance that the growth projections would be revised upward,” Bhattacharjee said, adding that inflation – prices are expected to rise-- will also play a key role in pushing growth.
Meanwhile the World Bank said that the global economy is set to grow by 5.6 per cent in 2021 – the strongest post-recession recovery in 80 years. The global growth is set to be driven by the US and China. The multilateral agency predicted a 6.8 per cent economic expansion for the US and 8.5 per cent for China.