The World Bank on Thursday trimmed India’s growth forecast for 2022-23 (April-March) by 100 basis points, projecting that the Indian economy will grow at 6.5 per cent compared to its earlier estimate of 7.5 per cent released in June. In 2021-22, India’s GDP grew by 8.7 per cent.
“Economic growth in India will slow down in the fiscal year ending March 2023, as the country is coming off a strong recovery in FY2022 (April 2021-March 2022). The spillovers from the Russia-Ukraine war and global monetary policy tightening will continue to weigh on India’s economic outlook: elevated inflation on the back of higher prices of key commodities and rising borrowing costs will affect domestic demand, particularly private consumption in FY2023/24, while slowing global growth will inhibit growth in demand for India’s exports,” the bank noted in its twice-a-year report on South Asia region.
“Private investment growth is likely to be dampened by heightened uncertainty and higher financing costs. The ongoing simplification of various business regulations will help ease the transition by creating new jobs and facilitating business transactions,” it added. Notably, the Reserve Bank of India also last week cut its growth forecast to 7 per cent from an earlier estimate of 7.2 per cent after raising the benchmark repo rate by 50 basis points to 5.9 per cent as it attempts to contain high inflation.
In its report, the World Bank also said that India was recovering stronger than the rest of the world.
“Despite the mounting challenges, there are also optimistic signs, as some sectors and some countries are recovering strongly. In India, services exports have recovered more strongly than in the rest of the world, and India’s ample foreign reserve buffers have afforded resilience to the country’s external sector,” the World Bank report pointed out.
War, policy tightening
India will slow down in the fiscal year ending March 2023, as the country is coming off a strong recovery in FY2022 (April 2021-March 2022). The spillovers from the Russia-Ukraine war and global monetary policy tightening will continue to weigh on India’s economic outlook, the bank noted in its twice-a-year report on South Asia region.
“The Indian economy has done well compared to the other countries in South Asia, with relatively strong growth performance… bounced back from the sharp contraction during the first phase of COVID,” Hans Timmer, World Bank Chief Economist for South Asia, told PTI.
He added that India has done relatively well with the advantage that it doesn’t have a large external debt. “But we have downgraded the forecast for the fiscal year that just started and that is largely because the international environment is deteriorating for India and for all countries. We see kind of an inflection point in the middle of this year, and first signs of slowing across the world,” he said.
Further, the bank cited the impact of war in Ukraine, which has caused a rise in commodity prices, and the uneven recovery from the impact of the Covid19 pandemic in the South Asia region. It forecast inflation in the region rising to 9.2 per cent this year before gradually subsiding.
Growth estimates for the South Asia region — comprising India, Pakistan, Afghanistan, Bangladesh, Sri Lanka, Nepal, Bhutan and the Maldives — were revised down to 5.8 per cent from 6.8 per cent forecast in June.
Timmer said that second half of the calendar year is weak in many countries and will be relatively weak also in India mainly because of two factors – one, because of the slowing of growth in the real economy of high-income countries, and two, the global tightening of monetary policy that tightens financial markets in a way that not just leads to capital outflows in developing countries, but also increases interest rates and uncertainty in developing countries thus having a negative impact on investment. WITH PTI