As rising commodity prices and debt troubles hit economies in South Asia, the World Bank cut the growth forecast for India for this financial year by a full percentage point.
According to the revised forecasts, growth in the region – comprising India, Pakistan, Afghanistan, Bangladesh, Sri Lanka, Nepal, Bhutan and the Maldives – will be 5.8%, down from 6.8% forecast in June, while India’s forecast will be 6.5%, down from 7.5%.
According to the bank, the impact of the war in Ukraine has caused a rise in commodity prices, as well as the uneven recovery from the COVID-19 pandemic in the region. It forecast inflation in the region to rise to 9.2% before gradually declining.
In its twice-a-year report on South Asia, the World Bank said, “Private investment growth is likely to be dampened by heightened uncertainty and higher financing costs,” noting that slowing global demand will impact the country’s exports.
Afghanistan was excluded from the regional report as it had not released national account data since the Taliban took power in August 2021.
The region’s economies grew at 7.8% in 2021, when most were recovering from the pandemic slump.
The Reserve Bank of India (RBI) has recently cut the economic growth projection for the current fiscal to 7% from 7.2% estimated earlier on account of extended geopolitical tensions and aggressive monetary policy tightening globally.
The RBI in April had cut GDP growth estimate to 7.2% from its earlier forecast of 7.8%.
In a short period of time, the COVID-19 pandemic, swings in global liquidity and commodity prices, as well as weather disasters, had severely affected the regional economies.
Martin Raiser, World Bank Vice President for South Asia said, “In the face of these shocks, countries need to build stronger fiscal and monetary buffers,” urging the governments to use scarce resources to protect people.
Additionally, the World Bank urged governments to relax visa restrictions and to support migrant workers in order to protect long-term development prospects.
