The World Bank has recently increased its projections for India’s economic growth by 4.7 percentage points to 10.1 per cent for Financial Year 2021-22, citing a strong rebound in private consumption and investment growth. The latest estimate is significantly higher than the 5.4 per cent growth rate predicted by the World Bank in January this year.
However, given the uncertainty that plagues the world, the World Bank has provided a range of economic growth for India— 7.5 to 12.5 per cent, according to its South Asia Economic Focus Spring update report.
“Given the significant uncertainty pertaining to both epidemiological and policy developments, real GDP growth for FY’22 can range from 7.5 to 12.5 per cent, depending on how the ongoing vaccination campaign proceeds, whether new restrictions to mobility are required, and how quickly the world economy recovers,” it said.
The report also forecasts the Indian economy to decline by 8.5 per cent in FY 2021, higher than eight per cent as estimated by India’s National Statistical office.
The World Bank said Government consumption is projected to rise by 16.7 per cent 2021, chiefly indicating strong fiscal stimulus in India. As the vaccination drive is expected to improve business activities and spur investments, other demand categories are also revised up.
The report stated that growth is expected to stabilise within the 6-7 per cent range. It said public consumption will contribute positively, however, suppressed private demand is expected to fade by the end of 2021. The investment will then pick up gradually, especially on the back of a large government capital expenditure push.
The premier bank observed that India’s growth in foreign direct investment in 2020 was enough to make South Asia the only major region in the developing world to witness an upsurge in FDI investments. The World Bank said India was the only country in the region to see an increase in FDI during 2020, though from a low base. FDI in India was equivalent to 1.5 per cent of the GDP.
Sectors such as IT consulting, digital sectors including e-commerce platforms, data processing services and digital payments are strongly contributing towards the economic growth, the World Bank said. However, it said that the uptick in growth has thus far come from mergers and acquisitions and not greenfield investment.
A combination of FDI, capital inflows and dampened import demand resulted in the net international reserves almost doubling to 17.3 months of imports of goods and services from an already comfortable 10.7 in 2019, the report said.
Regarding the South Asia region, the report predicted the region to grow by 7.2 per cent in 2021 and 4.4 per cent in 2022, propelled by the firm bounce-back from a very low base in mid-2020 (from a revised GDP decline of 5.4 per cent in 2020).