WASHINGTON: The World Bank said the coronavirus outbreak has severely disrupted the Indian economy, magnifying pre-existing risks to its outlook.
In its "South Asia Economic Update: Impact of COVID-19", the World Bank estimated the Indian economy to decelerate to 5 per cent in 2020 and projected a sharp growth deceleration in fiscal 2021 to 2.8 per cent in a baseline scenario.
The COVID-19 outbreak came at a time when India's economy was already slowing, due to persistent financial sector weaknesses, the report said. To contain it, the government imposed a 'lockdown' with restrictions on mobility of goods and people.
"The resulting domestic supply and demand disruptions (on the back of weak external demand) are expected to result in a sharp growth deceleration in FY21 to 2.8 percent in a baseline scenario (an estimate subject to wide confidence intervals)," the report said, adding that the services sector will be particularly impacted.
A revival in domestic investment is likely to be delayed given enhanced risk aversion on a global scale, and renewed concerns about financial sector resilience.
"Growth is expected to rebound to 5.0 per cent in fiscal 2022 as the impact of COVID-19 dissipates, and fiscal and monetary policy support pays off with a lag," the report said.
World Bank Chief Economist for South Asia Hans Timmer said India's "outlook is not good." And if the domestic lockdown is prolonged, then the economic result can be much worse than what the World Bank has in its baseline range of forecasts.