India estimated to grow at 8.3% in the current fiscal: World Bank

• India's economy is expected to grow by 8.3 per cent in the fiscal year 2021-22, less than the previous projection early this year before the country was hit by the second wave of the COVID-19 pandemic.
• The latest South Asia Economic Focus titled Shifting Gears: Digitization and Services-Led Development projects the region to grow by 7.1 percent in 2021 and 2022.
• While the year-on-year growth remains strong in the region, the recovery has been uneven across countries and sectors.

Key Points of Report

• The trajectory of the pandemic will cloud the outlook in the near-term until herd immunity is achieved.
• Growth is projected to stabilize around 7% FY23 onwards, helped by recent structural reforms to ease supply-side constraints, and increased infrastructure investment
• However, the degree of asset-quality deterioration from the pandemic-shock is unclear and may pose downside risks to the outlook
• In Bangladesh, continued recovery in exports and consumption will help growth rates pick up to 6.4 percent in fiscal year 2021-22.
• In Maldives, GDP is projected to grow by 22.3 percent in 2021, as tourism numbers recover.

On recovery

• Recovery remains uneven as many challenges and uncertainties remain.
• The strong near-term growth is driven in part by very low base numbers in 2020.
• The outlook will depend on the speed of vaccination, the possible emergence of new COVID variants, as well as any major slowdown in global growth momentum.
• Vaccine rollouts have accelerated but most countries still have some way to go to vaccinating the majority of the population, as constraints on the supply of vaccines remain.
• Emergence of a new services economy has created an opportunity for South Asia to shift gears and move away from the traditional manufacturing-led growth model toward a services-led development model.
• Countries in South Asia have a strong comparative advantage in exporting services, particularly business processes and tourism, whereas they have struggled to break into manufacturing export markets.

Policy options

• To unleash the growth potential and minimize the damages from COVID-19, policymakers need to strike a careful balance between preserving livelihoods, minimizing scarring, and promoting recovery in healthy sectors.
• Reverse the setback to human capital accumulation by expanding social safety nets and allocating adequate resources to healthcare and education.
• Support productivity through policies to facilitate job mobility and promote competition and innovation, and
• Optimize public infrastructure investment, particularly in green infrastructure to help crowd-in private investment.