The World Bank said (in the GEP report), that India’s economy is estimated to contract by 9.6 percent in the fiscal year 2020-21, reflecting a sharp drop in household spending and private investment, and the growth is expected to recover to 5.4 percent in 2021.

In its Global Economic Prospects report, the World Bank said that the informal sector, which accounts for four-fifths of employment has been subject to severe income losses during the Covid19  pandemic.

In India, the pandemic hit the economy at a time when growth was already decelerating. It must be noted that this report arrives after the Indian economy had entered a recession for the first time in 2020.  The output is estimated to contract by 9.6 percent in Fiscal Year 2020/21, reflecting a sharp drop in household spending and private investment, it said.

The bank further added in the report that in India, growth is expected to recover to 5.4 percent in 2021, as the rebound from a low base is offset by muted private investment growth given the financial sector weaknesses.

The informal sector, a substantial employment generator has taken a beating due to the unplanned lockdown and the loss of labour arbitrage. Recent high-frequency data indicates that the services and manufacturing recovery are gaining momentum, the report said. “In the financial sector, non-performing loans were already high before the pandemic,” it said.

In Pakistan, the recovery is expected to be subdued, with growth at 0.5 percent in fiscal 2020/21. Growth is projected to be held back by continued fiscal consolidation pressures and service sector weakness, it said. In the rest of South Asia, the economic impact of Covid-19 has been somewhat less severe but still significant. Economies that depend heavily on tourism and travel have been especially hard hit. That includes the Maldives, Nepal, and Sri Lanka, the report said.

“Regional economic activity is estimated to have contracted by 6.7 percent in 2020, led by a deep recession in India, where the economy was already weakened before the pandemic by stress in non-bank financial corporations,” the World Bank said.

In Bangladesh, which had been one of the fastest-growing emerging markets and developing economies prior to the pandemic, growth is estimated to have decelerated to two percent in FY 2019/20. In Pakistan, growth is estimated to have contracted by 1.5 percent in FY2019/20, reflecting the effects of localized Covid-19 containment measures as well as the impact of monetary and fiscal tightening prior to the outbreak, the bank said. South Asia is projected to grow by 3.3 percent in 2021.

“Weak growth prospects reflect a protracted recovery in incomes and employment, especially in the services sector, limited credit provisioning constrained by financial sector vulnerabilities, and muted fiscal policy support,” it said. The forecast assumes that a vaccine will be distributed on a large scale in the region starting the second half of 2021 and that there is no widespread resurgence in infections, it added.

PMI data suggests that India’s manufacturing sector activity strengthened in December

India’s manufacturing sector activity strengthened in December, with manufacturers stepping up production and input buying amid efforts to rebuild their inventories following business closures earlier in the year, a monthly survey said. The seasonally adjusted IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) was at 56.4 in December, a tick higher than November’s reading of 56.3 and above the critical 50 threshold for the fifth straight month. In PMI parlance, a print above 50 means expansion, while a score below that denotes contraction.

V-shaped recovery reported by FinMin since the June quarter debacle

The economy has witnessed a “V-shaped recovery” since the June quarter debacle and is now riding against the Covid wave on the back of effective management of the pandemic, the finance ministry claimed, exuding confidence in the strength and durability of the rebound. “The effective management of the Covid-19 spread despite the festive season and the onset of the winter season, combined with sustained improvement in high-frequency indicators and V-shaped recovery along with the easing of lockdown restrictions, distinguish the Indian economy as one riding against the Covid-wave,” the department of economic affairs said in its report on the economy for December.