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WB South Asia Economic Focus report: Indian economy grows at 1.5-2.8% in FY21 while South Asian at 1.8 – 2.8%

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World Bank (WB) in its “South Asia Economic Focus: The cursed blessing of public banks report” has projected that FY 2020-2021 (started April 1, 2020) is likely to be the India’s worst growth per former fiscal year since 1991 due to the severe economic disruptions caused due to COVID-19 impact. For 2020-21, Indian economy is expected to grow 1.5% to 2.8% which is lower than the 5.4 – 4.1% estimate of October 2019.For FY 2019-20 (ended on March 31, 2020), it expected a growth of 4.8% to 5% which is trimmed by 1.2 – 1% estimate made in October 2019.World Bank sees FY21 India growth

  • On the South Asian front, the economy is growing by 1.8 – 2.8% in FY 20-21 a sharp growth deceleration from the 6.3% which the World Bank projected six months ago.That would be the region’s worst performance in the last 40 years.
  • In this report the South Asian region comprised eight countries viz. Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka.
  • The hardest hit is Maldives where GDP is expected to decline by between 8.5 and 13% this year, due to the severe decline in tourism.

Reason behind slowed economy:
Indian economy was already growing slow due to the financial sector weaknesses since 2019. Then the lockdown imposed due to curb COVID-19 situation has made it worse. Shutting factories and businesses, suspending flights, stopping trains and restricting mobility of goods and people are the major factors behind this.

Efforts by World Bank to support Indian economy:
World Bank is working with India to mitigate the challenge posed by COVID-19. It has already approved USD 1 billion to India, of which the first tranche has been released to deal with the emergency in the health care sector.

  • It is also working with India on two additional operations, which is anticipated to be ready in a matter of weeks.These include employment, banking and micro, small and medium enterprises sector.

The cursed blessing of public banks
Public sector banks are more prevalent in South Asia. Over 40% of South Asia’s banking assets are owned by the public sector where India (62 percent) has the highest share followed by Bhutan (56 percent), Sri Lanka and the Maldives (somewhat over 40 percent). The lockdown is posing a severe impact on operation of these PSBs.

Current Indian economic growth Rating for FY 20-21 by other international agencies

Asian Development Bank (ADB): 4%

S&P Global Ratings: 3.5%

Fitch Ratings: 2%,

India Ratings & Research: 3.6%

Moody’s Investors Service: 2.5%

About World Bank:
Headquarters– Washington, D.C., United States
Member countries– 189
President– David Malpass
Subsidiaries– 5: International Bank for Reconstruction and Development (IBRD), International Development Association (IDA), International Finance Corporation (IFC), Multilateral Investment Guarantee Agency (MIGA), and  International Centre for Settlement of Investment Disputes (ICSID).