India's economy to contract by 9.6% in FY21 : World Bank

#GS3 #Economy

India's economy is expected to contract by 9.6% in the current fiscal year (2020-21) because of Covid-19 pandemic, the World Bank said on October 8, 2020. India's economy is the largest in South Asia. 

  • The World Bank in its biannual regional update stated that South Asia is set to plunge into its worst-ever recession as the devastating impacts of COVID-19 on the region's economies linger on. This would take a toll on the informal workers and push millions into extreme poverty in South Asia.
  • The World Bank's report titled 'Beaten or Broken? Informality and Covid-19' forecasts a sharper than expected economic slump across the South Asia region.

 

Key Highlights

  • As per the World Bank report, the regional growth of South Asia is expected to contract by 7.7 per cent in 2020 after topping 6 per cent annually in the past five years.  However, the regional growth is projected to rebound to 4.5 per cent in 2021. 
  • The income-per-capita in the region will remain 6 per cent below 2019 estimates, factoring growth in population. This indicates that the expected rebound will not offset the lasting economic damage caused by the pandemic.
  • The WB report further stated that in case of previous recessions, falling investment and exports led the downturn but this time it is different as private consumption, which is traditionally the backbone of demand in south Asia and a core indicator of economic welfare, will decline by more than 10 per cent, further spiking poverty rates.
  • Besides this, a decline in remittances is also expected to accelerate loss of livelihoods for the poorest in some countries.
  • According to World Bank Vice President for the south Asia region, Hartwig Schafer, the collapse of south Asian economies during Covid-19 has been more brutal than anticipated, worst of all for small businesses and informal workers who suffer sudden job losses and vanishing wages.
  • Schafer stated that though immediate relief has dulled the impacts of the pandemic, but governments still need to address the deep-seated vulnerabilities of their informal sectors through smart policies and allocate their scarce resources wisely."

 

Significance

  • Almost three-quarters of all workers in south Asia depend on informal employment, especially in sectors such as hospitality, retail trade and transport and these sectors are most affected by COVID-19 containment measures.
  • The World Bank report warns that informal workers and firms have very less space to cope with the unexpected magnitude of COVID-19. While the poor suffered severely due to rising food prices, Covid-19 crisis has dealt a further blow to many informal workers in the middle of the income distribution who experienced sharp drops in earnings. Only a few informal workers are covered by social insurance or have savings or access to finance, the report reveals.

 

Suggestions

  • The World Bank report urges governments to design universal social protection as well as policies that support greater productivity, skills development and human capital. 
  • As per the report, securing international and domestic financing will help governments fund crucial programs to speed up recovery.
  • Further, in the long-term, digital technologies may play an essential role in creating new opportunities for informal workers, making south Asia more competitive and better integrated into markets if countries improve digital access for all and enable workers to take advantage of such digital platforms.
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