The bank released a South Asia Economic Focus report ahead of its annual meetings beginning next week in Washington.
India’s real GDP (GDP) is projected to grow 8.3% in the current fiscal, the World Bank said as it released a South Asia Economic Focus report ahead of its annual meetings beginning next week in Washington. This growth projection is supported by increased public investment to boost domestic demand and plans, such as production-linked incentives, to boost manufacturing.
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Despite being devastated by a second COVID-19 wave Earlier this year, the economic impact of the pandemic this year has been “relatively small” compared to the 2020 impact, said the report, titled, Shifting Gears: Digitization and Services-Led Development. The growth rate is expected to be around 7% over the next two years (7.5% forecast in FY 2022/23 and 6.5% in FY 2023/24) as the base effect eases (ie, contraction of 7.3% in the previous year) , investment backed by infrastructure, as well as reforms to reduce supply-side bottlenecks. The bank said downside risks in the medium term include deterioration in asset quality due to the pandemic, slow recovery in the informal sector and higher than expected inflation.
Due to the targeted measures adopted by South Asian countries, this year has been more muted than the 2020 shock – despite the high number of infections – due to the pandemic. The entire South Asia region is expected to grow at 7.1%. in 2021 and 2022 and 5.4% in 2023.
The strong year-on-year growth numbers this year, however, are at least partly due to the much lower base numbers from 2020 and also because all the damage from the crisis has not been reversed. For example, the average annual growth rate for the period 2020-2023 is expected to be 3.4% – 3 percentage points lower than the average annual growth rate based on the four years before the pandemic. COVID-19 will push an estimated 100 million people into poverty worldwide in 2020. In South Asia alone, the number is around 62-71 million in the same year and 48-59 million in 2021.
Globally, favorable fiscal and monetary policies and low interest rates have been key to mitigating the economic impact of the pandemic on domestic and firms. However, while immunization efforts and relief measures are still needed, the report noted that there are limitations to the adjustment policies.
Medium-term growth needs to outweigh the risks
It is time to start rethinking policies and think about medium-term growth, not just short-term macroeconomic policy limits, Hans Timmer, the World Bank’s chief economist for South Asia, told reporters on a briefing call on Wednesday. due to reach.
“If you don’t start preparing now for what we call the ‘new normal’, and there’s always a new normal after a major crisis, you may be too late.”
Mr Timmer said preparedness means learning from the crisis, and in this case it means building social security and adopting green policies, as the next blow could be from the environment. Another lesson from the crisis was that inequality had increased – and women and the informal sector in particular were bearing the brunt.
“To reduce inequality, it is very important to integrate the informal sector and women into the economy. Therefore, this should also be an important element of the medium-term growth strategy.”
The report has an entire policy chapter devoted to the title topic – digitization, which refers to the “boost” that the services economy has received due to the pandemic. While South Asia as a whole has struggled to break into the manufacturing sector’s export markets – the rise of the new service economy offers these countries the opportunity to follow a growth path that is services-led rather than manufacturing-based. Is.
The need for regulatory experimentation in the new service sector
The Bank called on South Asian countries to reduce entry barriers to the services sector, thereby creating greater national and international competition, while curbing the “emergence of new monopoly powers”; To aid in labor market dynamism and skill upgradation; and enabling the absorption of these new services by households and firms.
Mr. Timmer said the formal services sector in South Asia, including India, is heavily regulated. Applying this level of regulation to new services – such as those that have evolved during the pandemic – would “kill” them, he said. Many new services were developing – in India and other parts of the world – outside the formal service sector, in a “grey area”, Mr. Timmer said. The conclusion in “most countries” is that there is a need for a “regulatory sandbox,” that is, experimenting with how these new services are regulated, he said.
“The very restrictive rules of the old service sector on the new service sector will kill it and there is no point. There is also no point in leaving it unchecked.”
While platforms (ie, digital platforms) can play an important role, they need to be regulated so that they do not become monopolies, Mr. Timmer said.
“What is very important for India is that if you want services to play an important role in growth, it has to be internationally competitive, and you have to allow for international competition.”
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