The World Bank has indicated that it may further lower its growth projections for India, even as it saw reforms in key sectors as critical to India's recovery from the pandemic-induced economic crisis.
The Bretton Woods institution had in May projected that the Indian economy will contract by 3.2% in 2020-21and rebound slowly in the next financial year.
Further challenges have emerged in recent weeks, which are likely to weigh on the prospects in the near term. These risks include:
- A continuing spread of the coronavirus
- Further deterioration in the global outlook
- Additional strains on the financial sector
"Keeping these factors in mind, a steeper contraction may be projected in the revised outlook that will be available in Oct. 2020," World Bank said in its India Development Update released on Wednesday.
It projected India's fiscal deficit to rise to 6.6% of the gross domestic product in FY21 and remain elevated at 5.5% in the following fiscal.
"The coronavirus pandemic has afflicted India at a time when its economy was already decelerating," World Bank said. "The outlook has now changed substantially, and the economy will likely contract in the current fiscal year.”
There would be a second round of consumption and investment slowdown in India, compounded by, and ultimately driving, distress in the financial sector and financial markets, it said.
The India Development Update is a biannual flagship publication of the World Bank that takes stock of the Indian economy.
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