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People are busy shopping at the market ahead of Eid al-Fitr festival in Kolkata on May 12. (Kuntal Chakrabarty/IANS photo)

UNITED NATIONS — The World Bank has forecast that the Indian economy would grow by 8.3 percent during the current fiscal year, an increase of nearly 3 percent from its January projection, but lower than the April estimate by almost 2 percent.

The Bank's Global Economic Prospects Report released June 8 said that India would be the second fastest-growing major economy, behind only China which is forecast to grow by 8.5 percent.

The report said that India's growth forecast is "supported by plans for higher spending on infrastructure, rural development, and health, and a stronger-than-expected recovery in services."

But it added, "Better growth prospects since January, however, masks significant damage to economic activity from COVID-19."

Economic growth is expected to slow to 7.5 percent during the next fiscal year as "the economy is expected to follow the same, yet less pronounced, collapse and recovery seen during the first wave," it said.

In January, the Bank had forecast a growth of India's gross domestic product GDP) by 5.4 percent which is 2.9 percent less than the latest expectation and in April by 10.1 percent, which was higher by 1.8 percent.

The report also moderated the shrinkage in India's economy to 7.3 percent in the last fiscal year, less than the 9.6 percent projected in January.

The report said that reflecting the "rebounds in some major economies," the global growth in 2021at 5.6 percent "is expected to reach its strongest post-recession pace in 80 years."

The Bank projected the global growth to slowdown to 4.3 percent next year and to 3.1 percent in 2023 as the effect of the rebound from the shrinkage of 3.5 percent in 2020 wears off.

Overall for South Asia, the Bank said, "Growth is projected to rebound to a stronger-than-expected 6.8 percent in 2021, partly reflecting momentum from the end of last year."

India accounts for most of the upgrade for the region "as strong services sector activity more than offsets the economic effects of the worsening pandemic," it said, adding, "The outlook is underpinned by a rebound in private consumption."

Pakistan's economy is expected to grow by only 2 percent this fiscal year, Bangladesh's by 5.1 percent Bhutan by 5 percent and Nepal by 3.9 percent, according to the Bank.

The forecasts on a calendar year basis for 2021 is 1 percent for Afghanistan, 17.1 percent for the Maldives and 3.4 percent for Sri Lanka.

The bank, however, warned, "With the recovery in early stages and the pandemic continuing to spread, the outlook is highly uncertain."

"Downside risks stem from high government debt, upward pressure on food prices, financial sector challenges, and the uncertain trajectory of COVID-19 and vaccination," it added.

Reflecting a particular risk for India, the Bank said, "Domestic financial sector stress remains a significant downside risk in the region, as nonperforming loans were high prior to the pandemic in the region's largest economies."

The Bank's projection for India is higher than the 7.5 percent forecast for this calendar year made by the UN's mid-year World Economic Situation and Prospects report issued last month.

But it is also significantly lower than the International Monetary Fund's projection of a 12.5 percent growth rate for the current fiscal year that was made in April before the second wave of the COVID-19 pandemic brutalized India.

IMF's Chief Economist Gita Gopinath had cautioned at that time that "these numbers precede the current wave of the virus, which is quite concerning."

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