World Bank Slashes India’s GDP Growth To 5% In FY20, The Lowest In 11 Years

On Wednesday, January 8, 2020, at the Washington headquarters, the World Bank (WB) officially released the Global Economic Prospects Report 2020, highlighting the concerns over the growth of the world due to several uncertainties. This can be observed from the title of the report itself, which is Global Economic Prospects: Slow Growth, Policy Challenges.

In its press release, it states that the “modest pickup to 2.5% in 2020 amid mounting debt and slowing productivity growth” across the globe is due to several uncertainties like trade wars, geopolitical tensions, series of extreme weather events and market protectionism and sanctions. The overall growth scenario across the regional economic blocks can be observed as follows:

Picture: Real GDP of countries at a glance (Percentages change from previous year)

Source: World Bank

For the 2020 forecast of growth, the economies of advanced countries have a projected growth rate of 1.4% compared to 1.6% is 2019-2020. The countries that come under Emerging Markets and -Developing Economies (EMDE) have a projected growth rate of 4.1% for 2020-2021 compared to 3.5% in 2019-2020. The regions, especially like Europe and Central Asia, Latin America and the Caribbean, Middle East and North Africa, South Asia and Sun-Saharan Africa are projected to have a slight increase in their growth for the year 2020–2021 with 2.6%, 1.8%, 2.4%, 5.5% and 2.9% respectively.

Only East Asia and Pacific region has been projected to have a decline in the growth rate at 5.7% compared to 5.8% of 2019-2020. Also the real Gross Domestic Product (GDP) among the high-income countries, developing countries, low-income countries and Brazil, Russia, India, China and South Africa (BRICS) countries are projected to have a growth rate of 1.5%, 4.3%, 5.4% and 4.9% respectively. Out of these income blocks, only BRICS nations and developing countries tend to see a positive change in the growth rate, and the World Bank has estimated a growth rate of 4.9% and 4.3% for 2020-2021 compared to 4.6% and 3.7% in 2019-2020 respectively.

India In World Bank Picture:

Earlier, the World Bank had projected India’s growth rate at 6% but underlined that the weakness in credit from Non-Banking Financial Companies (NBFCs) and lower consumption as one of the main reasons for the slow phase of growth at 5% for the Financial Year (FY) 2019-2020. It has also projected a growth rate of 5.8% for the year 2020-2021. In its report, it stated that the “tighter credit conditions in the non-banking sector are contributing to a substantial weakening of domestic demand in India”.

The report also underlined that South Asia’s growth is estimated to have decelerated to 4.9% in 2019-2020, substantially weaker than 7.1% in the previous year 2018-2019. This deceleration was observed in India through weak confidence and liquidity issues in the financial sector. It caused a sharp slowdown in fixed investment and a considerable softening in private consumption. It also added that business confidence was hampered by subdued consumer demand.

The report further mentioned that the economic activity slowed down substantially in 2019, with the deceleration most pronounced in the manufacturing and agriculture sector.

Interestingly, the report highlighted that “in India, disruptions to economic activity due to cash shortages in 2016 (Note Ban) and transitional costs related to the introduction of the new Goods and Services Tax (GST) system in 2017 contributed to a slowing of productivity growth to 5.6% a year during 2013 -18, from the 2003-08 average of 7.1% a year.”

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