South Asia Economic Focus

Context :

  • After a broad-based deceleration in the initial quarters of this fiscal year, India’s growth rate is projected to fall to 6%

About the Report

  • South Asia Economic focus is World Bank’s twice-a-year regional economic update.

Details of the Report

  • In 2018-19, the growth rate of the country stood at 6.9%. However, the bank in its latest edition of the South Asia Economic Focus said the country was expected to gradually recover to 6.9% in 2021 and 7.2% in 2022 as it assumed that the monetary stance would remain accommodative, given benign price dynamics.
  • Industrial output growth increased to 6.9% due to a pick-up in manufacturing and construction activities, the growth in agriculture and the services sector moderated to 2.9% and 7.5%, respectively.
  • In the first quarter of 2019-20, the economy experienced a significant and broad-based growth deceleration with a sharp decline in private consumption on the demand side and the weakening of growth in both industry and services on the supply side, the report said.
  • According to the World Bank, poverty has continued to decline, albeit possibly at a slower pace than earlier. Between 2011-12 and 2015-16, the poverty rate declined from 21.6% to 13.4% ($1.90 PPP/day).

Way Forward

  • The main policy challenge for India is to address the sources of softening private consumption and the structural factors behind weak investment, the bank said.
  • “This will require restoring the health of the financial sector through reforms of public sector banks’ governance and a gradual strengthening of the regulatory framework for NBFCs, while ensuring that solvent NBFCs retain access to adequate liquidity.”
  • “It will also require efforts to contain fiscal slippages, as higher-than-expected public borrowings could put upward pressure on interest rates and potentially crowd-out the private sector,” it said.
  • According to the bank, the main sources of risk included external shocks that result in tighter global financing conditions, and new NBFC defaults triggering a fresh round of financial sector stress.
  • To mitigate these risks, the authorities would need to ensure that there was adequate liquidity in the financial system while strengthening the regulatory framework for the NBFCs, the bank added.

Source: Livemint