Economy

World Bank retains India’s GDP forecast at 8.3% for current fiscal

Our Bureau New Delhi | Updated on October 07, 2021

Rise in public investment and incentives to boost manufacturing will support domestic demand, says the report

The World Bank on Thursday retained India’s GDP growth rate for current fiscal at 8.3 per cent while Fitch lowered projection to 8.3 per cent.

“India’s economy, South Asia’s largest, is expected to grow by 8.3 per cent in the fiscal year 2021-22, aided by an increase in public investment and incentives to boost manufacturing,” the Wold Bank said in its update on South Asia, titled ‘Shifting Gears: Digitization and Services-led Development.’ For the next fiscal (FY 2022-23), the projection is 7.5 per cent, while for FY 2023-24, it is 6.5 per cent. The multilateral agency has not made any change in the estimate for current fiscal and next fiscal from its June statement.

PLI boost

The report noted that production-linked incentives scheme to boost manufacturing, and a planned increase in public investment, should support domestic demand. The trajectory of the pandemic will cloud the outlook in the near-term until herd immunity is achieved. For the next fiscal, report highlighted that growth will be helped by recent structural reforms to ease supply-side constraints, and increased infrastructure investment.

However, “the degree of asset-quality deterioration from the pandemic-shock is unclear and may pose downside risks to the outlook,” it said. Further it said that higher inflation and slow recovery in the informal sector pose risk to consumer spending. “Persistently high inflation can also put pressure on the RBI’s accommodative monetary policy stance,” it said.

Talking about fiscal deficit (difference between income and expenditure of the government), the report projects it to shrink as revenues recover and pandemic-related support winds down. Still, “it will remain above 10 percent of GDP in FY22, driven by a rise in capital spending,” it said.

The report talks about improvement in labour market which will have impact on poverty reduction. However, “employment rates are still lingering well below pre-pandemic levels despite improvements after the 2020 lockdown. As earnings of low skill workers remain well below 2019 levels, it might take longer than previously expected for India to achieve the goal of reducing extreme poverty to below 3 percent,” it said.

Fitch outlook

Meanwhile, Fitch Ratings has said it has further lowered India's GDP forecast for the current fiscal to 8.7 per cent from 10 per cent in June as a result of the severe second virus wave. It had in June cut the growth forecast from 12.8 per cent.

"In our view, however, the impact of the second wave was to delay rather than derail India's economic recovery, reflected in an upward revision of our FY23 (April 2022-March 2023) GDP forecast to 10 per cent from 8.5 per cent in June," it said.

High-frequency indicators point to a strong rebound in the second quarter of the current fiscal (April 2021-March 2022), as business activity has again returned to pre-pandemic levels.

Fitch, however, saw a wider fiscal deficit. "We forecast a 7.2 per cent of GDP (excluding disinvestment) central government deficit in FY 22," it said.

Published on October 07, 2021

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