On Tuesday, the World Bank cut down India’s Economic Growth Forecast for FY23 to 7.5%.
The World Bank mentioned the reason for such a massive drop as rising inflation, disruptions in the supply chain, and geopolitical tensions. It shows tapered recovery.
The World Bank has revised India’s Economic Growth Forecast for FY23 for the second time. The World Bank had trimmed the forecast from 8.7% to 8% in April 2022.
The GDP growth compares to an 8.7% expansion in FY22.
The World Bank’s latest issue stated, “In India, growth is forecast to edge to 7.5% in the fiscal year 2022/23, with headwinds from rising inflation, supply chain disruptions, and geopolitical tensions offsetting buoyancy; in the recovery of services consumption from the pandemic.”
The World Bank added that the growth requires the support of fixed investment undertaken by the government and private sectors, as they have introduced incentives and reforms in the business. The forecast is a reflection of a 1.2 % downward movement from the January projection.
The World Bank said that the growth might slow down to 7.1% in FY24 towards its longest-run potential.
The wholesale price inflation touched 15.08% in April, a record. The retail inflation had an eight-year consistent high of 7.79%. It is because of the hiked prices of fuel, vegetables, cooking oil, etc.
The high inflation has made the RBI conduct an unscheduled meeting to raise the benchmark interest rate by 40 basis points to 4.40% last month. There is another hike expected on Wednesday.
The global rating agencies also slashed India’s Economic Growth Forecast. Last month, the Moody’s Investors Service had trimmed the GDP projection for FY22 from 9.1% to 8.8% due to high inflation.
S&P Global rating has trimmed India’s GDP Projection for FY23 from 7.8% to 7.3%. Fitch had cut the projection from 10.3% to 8.5%. The IMF had shrunk from 9% to 8.2%.
Asian Development Bank projected India’s GDP at 7.5%, while the RBI cut down the projection from 7.8% to 7.2%. The above reasons are volatile crude prices, Russia-Ukraine War, and supply chain disruptions.
The World Bank report states that in the first half of 2022, growth in India had slowed down due to rising Covid-19 cases, targeted mobility restrictions, and the Russia-Ukraine war. The recovery is questionable due to high inflation.
The unemployment rate has declined in comparison to the levels before the pandemic. But, the labor-force participation rate deteriorates as the workers have shifted to low-paying jobs.
The World Bank said, “In India, the focus of government spending has shifted toward infrastructure investment, labor regulations are being simplified, underperforming state-owned assets are being privatized, and the logistics sector is expected to be modernized and integrated.”
The foreword report from World Bank President David Malpas stated, ” After multiple crises, long-term prosperity depends on returning to faster growth and a more stable rules-based policy environment.
He added, “This reflects a nearly one-third cut to our January 2022 forecast for this year of 4.1%.” It is due to degrowth globally from 5.7% in 2021 to 2.9% in 2022.
David Malpas added, “The surge in energy and food prices, along with the supply and trade disruptions triggered by the war in Ukraine and the necessary interest-rate normalization now underway, account for most of the downgrade.”