protection measures; to ensure that busi- INDIA nesses could maintain their operations, Key conditions and the Reserve Bank of India (RBI) and the challenges government also provided liquidity and other regulatory support. Nonetheless, there was a massive contraction in output Table 1 2019 India emerged from the Global Financial and poor and vulnerable households ex- P o pulatio n, millio n 1 371 .3 Crisis (GFC) with stressed balance sheets perienced significant social hardship – GDP , current US$ billio n 2862.3 of banks and corporates, depressed pri- specifically urban migrants and workers GDP per capita, current US$ 2087.3 vate investment, and weaker exports in the informal economy. a growth. Efforts to deal decisively with Internatio nal po verty rate ($ 1.9) 22.8 a nonperforming assets in the banking sec- Lo wer middle-inco me po verty rate ($ 3.2) 62.4 Gini index a b 35.4 tor, strengthen the insolvency framework, and improve the governance of public Recent developments Scho o l enro llment, primary (% gro ss) 1 1 3.0 b 69.4 sector banks were only partially success- Life expectancy at birth, years ful. Thus, in the period following the GFC, In the first quarter of FY21 (India’s fiscal Source: WDI, M acro Poverty Outlook, and official data. growth was driven mainly by private con- year is from April 1 to March 31) econom- Notes: (a) M ost recent value (2011), 2011 PPPs. sumption. From FY09 to FY18 annual ic growth contracted by an unprecedented (b) WDI for School enrollment (2017); Life expectancy (2018). GDP growth averaged 6.7 percent (or 5.2 23.9 percent (year-on-year). On the de- percent per capita). mand side, private consumption and in- After FY17, during which the economy vestment contracted sharply. On the sup- grew at 8.3 percent, growth decelerated ply side, industrial and services output in each subsequent year to 7.0, 6.1 and fell by 38 and 21 percent, respectively. India ’s economy had been slowing prior 4.2 percent. This was on account of two After reaching 4.8 percent in FY20, head- to the COVID -19 pandemic. The spread mutually reinforcing dynamics: emerg- line inflation averaged 6.6 percent, during ing weaknesses in non -bank financial April-July 2020, given supply-chain dis- of the virus and containment measures companies (a major source of credit ruptions. The RBI cut the repo rate by a have severely disrupted supply and de- growth, making up for risk aversion cumulative 115 bps between March and mand conditions. Monetary policy has from banks) and slowing private con- May, while maintaining significant excess been deployed aggressively and fiscal sumption growth. liquidity in the market, and then paused resources have been channeled to public Thus, the impact of COVID-19 material- further easing in August. ized against a backdrop of (i) enduring During the first quarter of FY21, the cur- health and social protection, but addi- fragility in the financial sector, (ii) slowing rent account turned to a surplus, as a large tional counter -cyclical measures will be overall growth, and (iii) limited fiscal buff- decline in imports more than offset a drop needed, within a revised medium -term ers. The response of the government of in exports. With significant net foreign fiscal framework. Despite measures to India to the COVID-19 outbreak was swift investment inflows, foreign reserves and comprehensive. A strict lockdown reached USD 534.5 billion at end-July, shield vulnerable households and firms, was implemented to contain the health equivalent to more than 13 months of the trajectory of poverty reduction has emergency. To mitigate its impact on the FY20 imports. Following a sharp depreci- slowed, if not reversed. poorest, it was complemented by social ation in March, the rupee has gradually FIGURE 1 India / Real GDP growth and contributions to real FIGURE 2 India / Actual and projected poverty rates and GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (LCU constant) 15 80 120000 10 70 100000 60 5 80000 50 0 40 60000 -5 30 40000 -10 20 20000 10 -15 2012 2013 2014 2015 2016 2017 2018 2019 2020e 0 0 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 Other Net exports Gross fixed capital formation Final consumption International poverty rate Lower middle-income pov. rate Real GDP growth Real GDP pc Sources: National Statistical Office, World Bank staff calculations. Sources: World Bank. Notes: see Table 2. MPO 190 Oct 20 regained its value against major curren- urban and rural areas fell by 4.2 and 3.8 reach a surplus of 0.7 percent of GDP in cies but remains slightly weaker than at percentage points, respectively. Overall, FY21 and is projected to gradually return the start of the year. the pandemic has likely raised urban pov- to a deficit in later years. The growth slowdown in FY20 and the erty, creating a set of “new poor” charac- The COVID-19 shock will lead to a long- contraction in early FY21 have impaired terized by non-farm employment and lasting inflexion in India’s fiscal trajectory. revenue collection. Thus, after increasing secondary or tertiary education. Assuming that the combined deficit of the to 7.6 percent in FY20 (from 5.4 percent in states is contained within 4.5-5 percent of FY19), the general government deficit is GDP, the general government fiscal deficit believed to have increased further during the first half of FY21. Outlook is projected to rise to above 12 percent in FY21 before improving gradually. Public Available household survey consumption debt is expected to remain elevated, data indicate that the poverty rate de- Growth is expected to contract sharply in around 94 percent, due to the gradual clined from 22.5 percent to values ranging FY21 (by 9.6 percent in a baseline scenar- pace of recovery. from 8.1 to 11.3 percent, between 2012 io), reflecting the impact of the national Policy interventions have preserved the and 20171. More recent household survey lockdown and the income shock experi- normal functioning of financial markets data2 indicate significant disruptions to enced by households and firms. Howev- thus far. However, the demand slow- jobs due to COVID-19 that likely boosted er, there is substantial uncertainty related down could lead to rising loan delin- the poverty rate, with 2020 rates back to to (i) the course and duration of the pan- quencies and risk aversion. Recent RBI levels overserved in 2016. These surveys demic, (ii) the speed at which households analysis indicates the gross nonperform- suggest the labor force participation rate and firm behavior will adjust to the lifting ing loans to asset ratio of scheduled com- was 3.2 percentage points lower in the of lockdowns, and (iii) a possible new mercial banks may increase to 12.5 per- last week of August than in the months round of countercyclical fiscal policy. cent by March 2021 (from 8.5 percent in leading up to the lockdown. They also Thus, there is a wide confidence interval March 2020). point to increased vulnerability: 11 and 7 around the baseline projections. Growth percent of urban and rural individuals, is expected to rebound to 5.4 percent in respectively, who recently identified FY22, but mostly reflecting base effects, 1/ The point estimate for 2017 is 10.4. The confidence themselves as “employed” performed while potential output is expected to re- interval reflects the degree of uncertainty associated zero hours of work in the week prior to main depressed in the medium -term. In- with different statistical methods used to estimate the survey. Data on the government’s flation is expected remain around the poverty in the absence of recent household survey rural workfare program show that de- RBI’s target range mid -point (4 percent) data. As documented in Box 1.3 of the Poverty and Shared Prosperity report (2020), there are other addi- mand for casual work increased 66 per- in the near-term. tional sources of uncertainty that are not reflected in cent y-o-y in August 2020. Between the Weak activity, domestically and abroad, this range of estimates. last four months of 2019 and May-August will depress both imports and exports. 2/ From the Centre for Monitoring Indian Economy 2020, the proportion of people working in Thus, the current account is expected to (CMIE). TABLE 2 India / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2017/18 2018/19 2019/20 2020/21 e 2021/22 f 2022/23 f Real GDP growth, at constant market prices 7.0 6.1 4.2 -9.6 5.4 5.2 Private Consumption 7.0 7.2 5.3 -13.2 6.1 5.5 Government Consumption 11.8 10.1 11.8 10.5 5.5 5.9 Gross Fixed Capital Investment 7.2 9.8 -2.8 -16.2 7.8 6.7 Exports, Goods and Services 4.6 12.3 -3.6 -12.0 7.3 8.5 Imports, Goods and Services 17.4 8.6 -6.8 -20.0 12.3 12.0 Real GDP growth, at constant factor prices 6.6 6.0 3.9 -9.6 5.4 5.1 Agriculture 5.9 2.4 4.0 4.0 3.5 3.5 Industry 6.3 4.9 0.9 -20.0 5.5 5.0 Services 6.9 7.7 5.5 -7.4 6.0 5.7 Inflation (Consumer Price Index) 3.6 3.4 4.8 3.8 4.0 4.0 Current Account Balance (% of GDP) -1.8 -2.1 -0.8 0.7 0.0 -0.5 Net Foreign Direct Investment (% of GDP) 1.1 1.1 1.5 1.1 1.3 1.5 Fiscal Balance (% of GDP) -5.8 -5.4 -7.6 -12.4 -10.9 -8.9 Debt (% of GDP) 69.8 67.5 72.2 90.4 93.5 94.1 Primary Balance (% of GDP) -1.1 -0.9 -2.8 -7.0 -4.4 -2.1 International poverty rate ($1.9 in 2011 PPP) a,b 10.4 9.2 8.3 11.1 10.0 9.0 Lower middle-income poverty rate ($3.2 in 2011 PPP) a,b 44.9 42.4 40.9 46.2 43.9 41.9 So urce: Wo rld B ank, P o verty & Equity and M acro eco no mics, Trade & Investment Glo bal P ractices. No tes: e = estimate, f = fo recast. NA (a) Calculatio ns based o n SA R-P OV harmo nizatio n, using 201 1-NSS-SCH1and fiscal year gro wth rates.A ctual data: 201 1. No wcast: 201 2-201 9. Fo recast are fro m 2020 to 2022. (b) P ro jectio n using neutral distributio n (2011) base o n HFCE with pass-thro ugh .733 (rural) and .559 (urban) up to 2015, and .67 fo r 2016-17. GDP pc in co nstant LCU with pass-thro ugh = .67 fo r 201 8-23. MPO 191 Oct 20