World Bank raises India's FY22 GDP forecast to 10.1% from 5.4% earlier

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  World Bank raises India's FY22 GDP forecast to 10.1% from 5.4% earlier

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• The story: The World Bank (WB) raised its forecast of India’s FY22 growth to 10.1%, substantially higher than the 5.4% it had projected in January 2021, according to its South Asia Economic Focus Spring update report.  (FY 22 means 2021-22).
• In a range: Reflecting the uncertainty on account of the pandemic, the WB chose to provide a range for its FY22 prediction of 7.5-12.5% due to “significant uncertainty at this stage about both epidemiological and policy developments”, the report said. The improvements came on the back of the country’s vaccination drive, which was likely to spur activity in contact-intensive sectors and the government’s infrastructure push in the budget, the report titled, ‘South Asia Vaccinates’ said.

1. With regard to the range, the report said growth would depend on the progress of the vaccinations, whether new restrictions to mobility would be required, and how quickly the world economy recovers.
2. Acknowledging that the wide range was not normal, Hans Timmer, chief South Asia economist at the WB, said it also reflected the difficulty in measuring gross domestic product (GDP) due to the impact of the pandemic on the informal economy.

• Risks: The main risks to the outlook included the “materialisation of financial sector risks, that could compromise a recovery in private investment, and new waves of Covid-19 infections”. While India's second wave posed a risk, the spike in Covid-19 cases would not imply a repeat of the first lockdown as the current approach was much more targeted. The International Monetary Fund had a more optimistic outlook, pegging India’s growth at 11.5% in FY22.
• Tempering the outlook: The WB also tempered its estimate of India’s FY21 GDP contraction to 8.5% from -9.6% earlier as the recovery accelerated in the July-December period with private consumption and investment showing a sharp rebound. The report projected growth for the South Asian region at 7.2% for 2021 and 4.4% for the next year, with India making up for 80% of the region's GDP.
• Vaccine rollout: India could stand to gain $356.5 billion upon achieving herd immunity after vaccinating 70% of the population, the WB said. Further, the report estimated that ending the pandemic a half to one-and-a-half years earlier by accelerating the vaccine drive could avoid output loss ranging between 5.5-16.4% of GDP for India. While the country had vaccinated about 63 million people as of Wednesday, according to government data, the average monthly vaccinations would have to be ramped up to 80 million in order to vaccinate 70% of the population by the end of 2022, the report said. The vaccination drive was likely to get more difficult later on as issues of procurement and the willingness of people to take the jabs falter, Timmer said. Depending on different cost scenarios, the WB projected the cost of vaccinating 70% of the population to range between $8.2 million to $15 million.

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