The World Bank on Tuesday scaled down its FY23 growth forecast for India to 7.5% from 8% predicted in April, citing the damaging impact of rising inflation, supply-chain disruptions and the Russia-Ukraine conflict. These headwinds would offset “buoyancy in the recovery of services consumption from the pandemic”, it said.
With this, the multilateral body has revised down its India growth projection for a second time since the Ukraine war began — it had cut its forecast by 70 basis points in April. The country’s GDP grew 8.7% in FY22, albeit on a sharply-contracted base.
In its latest issue of the Global Economic Prospects, the World Bank pegged India’s FY24 growth at 7.1%, up 30 bps from its April forecast but slower than the latest projected growth of 7.5% for the current fiscal.
It has also scaled down its global growth projection by as much as 120 bps to just 2.9% for 2022. It warned that the Ukraine conflict has added to the miseries of the pandemic and many countries could potentially face recession.
As for India, the multilateral body, however, added that growth will be supported by fixed investment undertaken by both the private sector and the government (the latter has introduced incentives and reforms to improve the business climate).
With this, the World Bank joined a number of agencies that have trimmed their growth projections for the country in recent months, after the Ukraine war pushed up global prices of commodities, especially oil. Moody’s recently scaled down the GDP projection to 8.8% for the calendar year 2022 from 9.1% earlier. S&P cut its FY23 projection to 7.3% from 7.8%. The International Monetary Fund had in April revised down its India forecast to 8.2% from 9% earlier.
The Bank said growth in India slowed in the first half of 2022, as economic activity was disrupted both by a surge in Covid cases, coupled with more-targeted mobility curbs, and by the Ukraine war. The recovery is facing headwinds from soaring inflationary pressure. Retail inflation hit an almost eight-year high of 7.79% in April, while wholesale price inflation scaled an over 30 year high of 15.08%.
While the unemployment rate has dropped to the pre-pandemic level, the labour force participation rate remains below the pre-Covid level and workers have shifted to lower-paying jobs.
The focus of government spending in India has shifted towards infrastructure investment. Labour regulations are being simplified, underperforming state-owned assets are being privatised, and the logistics sector is expected to be modernised and integrated, the multilateral body said.
