India needs reform impetus to reverse slowdown: World Bank

21 Aug '20

3 min read

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India needs to continue to implement critical reforms in key areas like health, labour, land, skills and finance to come out stronger from the impact of the COVID-19 pandemic, according to the World bank, which recently said in a report that these reforms should aim at enhancing productivity of the Indian economy and spur private investments and exports.

The India Development Update is a biannual flagship publication of the World Bank that takes stock of the Indian economy.

The current issue describes the state of the Indian economy over the previous six months and places these in a longer-term and global context.

The World Bank projections in this report are from May 2020 when it projected the economy to contract by 3.2 per cent in fiscal 2020-21, and rebound slowly in the nest fiscal. It further estimated that the COVID-19 outbreak is likely to have significant fiscal implications.

The fiscal deficit of the central government is likely to increase to 6.6 per cent of the gross domestic product (GDP) in this fiscal and is expected to remain elevated at 5.5 per cent in the next. Assuming that the states’ deficit is contained within 3.5-4.5 per cent of the GDP, the combined deficit could rise to around 11 per cent in this fiscal.

While there is a significant level of uncertainty around the projections, the general government debt-to-GDP ratio is projected to peak at around 89 per cent in fiscal 2022-23 before gradually declining thereafter.

The outlook comes predicated with several downside risks. Further challenges have emerged in recent weeks that are likely to weigh on the prospects in the near term. These risks include the virus continuing to spread; a further deterioration in the global outlook; and additional strains projected on the financial sector. Keeping these factors in mind, a steeper contraction may be projected in the revised outlook that will be available in October 2020.

“While the Government of India, with the support of the Reserve Bank, is continuing to take action to limit the impact of the COVID-19 pandemic, there is a recognition of both the uncertainty of the nature of the economic revival globally and the emergence of opportunities opened by the current crisis,” said Junaid Ahmad, World Bank country director in India.

The report says furthering reforms will help put the economy back on a 7 per cent growth path.

It suggests reassessing subsidies to leverage any scope for efficiency gains; evaluating how much can be borrowed domestically and externally; generating non-tax revenues more aggressively; and linking the repayment of new borrowings to disinvestment receipts.

To put the financial sector on a sounder footing, the report identifies specific areas of reform. These include financial sector stability, reforms in the non-banking finance company (NBFC) sector, deeper capital market reforms.

The current crisis has also brought to the forefront new economic opportunities in the areas of digital technology, retail, health-technology and education-technology services; and global demand in areas such as pharmaceuticals, medical equipment, and protective gear. These opportunities can provide new growth levers for India, the report added.

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