The World Bank expects the economy to gradually recover and grow to 6.9% in the fiscal 20/21 starting next April
Not long after Union Minister of IT & Communications (and Law & Justice), Ravi Shankar’s declaration that India is a sound economy because of three movies making Rs. 120 crore in a single day, the World Bank on Sunday slashed the country’s growth forecast for India’s current fiscal year to 6 percent. It warned that the ‘severe slowdown’ could further weaken the country’s already unsteady financial sector.
Yet, top Indian leaders seem to float in their own world of magical realism. Prasad not only made flippant statements about the economy being “sound” due to high movie ticket collections, but also junked his own government’s report about India’s 45-year high unemployment rate, calling it incomprehensive.
In a similar vein, not too long ago, Finance Minister Nirmala Sitharaman had blamed the “mindset of millennials” for the declining car sales saying they preferred hailing private taxis or use the metro to commute to work instead of committing to Easy Monthly Installments (EMIs) for buying their own vehicle.
This could be an article of a long list of similar goof-ups! Minister for Railways, Piyush Goyal, a trained chartered accountant himself, said that the people shouldn’t “do maths” about the economic slowdown as maths never helped Einstein discover gravity. After an uproar on Twitter, with erudite users of the social media micro blogging site reminding him that it was Newton, not Einstein who made that discovery, he apologized.
The cherry on the cake came by Rashtriya Swayamsevak Sangh (RSS) chief Mohan Bhagwat who said that if people simply stopped talking about the slowdown, the economic activity would pick up.
What the World Bank Said
In 2018-19, the growth rate stood at 6.9 percent. However, in its latest edition of the South Asia Economic Focus, the bank said that the country was expected to gradually recover to 6.9 percent in 2021 and 7.2 percent in 2022.
Findings of the report show that strong domestic demand, which propped high growth in the past, has weakened, driving a slowdown across the region. With private consumption growing 3.1 percent in the last quarter from 7.3 percent a year ago, while manufacturing growth plummeted to below 1 percent in the second quarter of 2019 compared to over 10 percent a year ago domestic demand in India has slipped.
Private consumption though growing, had slowed down in the second quarter, one reason being the contraction of car sales due to high insurance premiums, new emission norms and uncertainty in GST cuts among other issues. The contraction of NBFC funding which financed 40 percent of car sales, has also contributed to the consumption slowdown.
The World Bank also noted that the widening of the current account deficit to 2.1 percent in 2018-19 from 1.8 percent last year reflected a deteriorating trade balance.
According to the report, the deceleration in growth demands decisive policy actions, and officials say that the initial government steps – easing cycle and stimulus package, point out in the right direction.
Poverty has continued to decline, although at a slower pace than earlier, mentioned the World Bank. Disruptions brought on by implementation of GST and demonetization, combined with a high youth unemployment rate and stress on the rural economy, may have increased the risk for the poorest households said the report.
The report said that India will have to restore the health of the financial sector through reforms in the governance of public sector banks and strengthening of the regulatory framework for NBFCs, while containing fiscal slippages.
The World Bank, from its estimates, expects the South Asian economy to grow lower by 1.1 percent at 5.9 percent this year. In its study, it has also cut growth forecasts for Maldives, Sri Lanka and Bhutan, while raising those for Bangladesh and Nepal.
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