World Bank cuts India’s economic growth forecast to 7.5% for FY23

Global growth is expected to slow sharply from 5.7% in 2021 to 2.9% this year.

Global growth is expected to slow sharply from 5.7% in 2021 to 2.9% this year.

The World Bank on Tuesday lowered India’s economic growth forecast for the current fiscal year to 7.5% as rising inflation, supply chain disruptions and geopolitical tensions dampen the recovery.

This is the second time that the World Bank has revised its GDP growth forecast for India in the current fiscal year 2022-23 (April 2022 to March 2023). In April, it had lowered the forecast from 8.7% to 8% and now it is forecast at 7.5%.

GDP growth is comparable to a growth of 8.7% in the previous fiscal year 2021-2022.

“In India, growth is expected to slow to 7.5% in fiscal year 2022-23, with headwinds from rising inflation, supply chain disruptions and geopolitical tensions offsetting the rebound in service consumption recovery from the pandemic” , according to the World Bank. said in the latest issue of the Global Economic Prospects.

Growth will also be supported by fixed investment by the private sector and the government, which has introduced incentives and reforms to improve the business environment. This forecast reflects a 1.2 percentage point growth cut from January’s projection, the bank added.

“Growth is expected to slow further to 7.1% in 2023-24, back to its longer-term potential,” it noted.

A rise in prices for all items from fuel to vegetables and cooking oil pushed WPI or wholesale price-based inflation to a record high of 15.08 percent in April and retail inflation to an almost eight-year high of 7.79%

High inflation prompted the Reserve Bank to hold an unscheduled meeting to raise benchmark interest rates by 40 basis points to 4.40% last month, with another hike expected on Wednesday.

Prior to the World Bank’s move, global rating agencies had also lowered India’s economic growth forecast. Last month, Moody’s Investors Service lowered its GDP projection to 8.8% for calendar year 2022 from 9.1% earlier, citing high inflation.

S&P Global Ratings had also lowered India’s 2022-23 growth forecast to 7.3% from 7.8% earlier, amid rising inflation and the longer-than-expected conflict between Russia and Ukraine.

In March, Fitch had cut India’s growth forecast from 10.3% to 8.5%, while the IMF cut its projection from 9% to 8.2%

The Asian Development Bank (ADB) has pinned India’s growth at 7.5%, while the RBI cut its forecast from 7.8% to 7.2% in April amid volatile crude oil prices and supply chain disruptions. as a result of the ongoing war between Russia and Ukraine.

According to the World Bank report, growth in India slowed in the first half of 2022 as activity was disrupted by both an increase in COVID-19 cases accompanied by more targeted mobility restrictions and the war in Ukraine. The recovery is experiencing headwinds from rising inflation.

The unemployment rate has fallen to pre-pandemic levels, but the labor force participation rate remains below pre-pandemic levels and workers have moved into lower-paying jobs.

In India, the focus of government spending has shifted to infrastructure investment, labor regulations are being simplified, underperforming state properties are being privatized and the logistics sector is expected to be modernized and integrated, the bank said.

World Bank President David Malpas said in his foreword to the report that after multiple crises, long-term prosperity will depend on a return to faster growth and a more stable rules-based policy environment.

“There is good reason to expect that once the war in Ukraine ends, efforts will redouble — including by the World Bank Group — to rebuild Ukraine’s economy and revitalize global growth.” Global growth is expected to slow sharply from 5.7% in 2021 to 2.9% this year. “This also reflects a reduction of nearly a third from our January 2022 forecast for this year of 4.1 percent,” he said.

“The rise in energy and food prices, along with the supply and trade disruptions caused by the war in Ukraine and the necessary normalization of interest rates now underway, are responsible for most of the cut.” Malpass added.

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