The World Bank on Tuesday lowered India’s forecast to 7.5 per cent for the current fiscal year, i.e., 2022-23 (FY 23). It is 120 basis points lower than the earlier projection.

India recorded a growth rate of 8.7 per cent in FY22.

“In India, growth is forecast to edge down to 7.5 per cent in 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. Growth will also be supported by fixed investment undertaken by the private sector and by the government, which has introduced incentives and reforms to improve the business climate,” World Bank said in its latest issue of the Global Economic Prospects.

Growth is expected to slow further to 7.1 per cent in 2023/24, back towards its longer-run potential, it added.

Second time

This is the second time that the World Bank has revised its GDP growth forecast for India in FY23. In April, it trimmed the forecast from 8.7 per cent to 8 per cent Earlier, Moody’s Investors Service trimmed the GDP projection to 8.8 per cent for the calendar year 2022 from 9.1 per cent earlier, citing high inflation. S&P Global Ratings too cut India‘s growth projection for 2022-23 to 7.3 percent, from 7.8 per cent earlier, on rising inflation and a longer-than-expected Russia-Ukraine conflict.

In March, Fitch had cut India‘s growth forecast to 8.5 per cent, from 10.3 per cent, while the IMF had lowered the projection to 8.2 per cent from 9 per cent. The Asian Development Bank (ADB) has pegged India‘s growth at 7.5 per cent, while RBI in April cut the forecast to 7.2 per cent from 7.8 per cent amid volatile crude oil prices and supply chain disruptions due to the ongoing Russia-Ukraine war.

The World Bank observed that in India, growth slowed in the first half of 2022 as activity was disrupted both by a surge in Covid-19 cases, accompanied by more-targeted mobility restrictions, and by the war in Ukraine. The recovery is facing headwinds from rising inflation. The unemployment rate has declined to levels seen prior to the pandemic, but the labour force participation rate remains below pre-pandemic levels and workers have shifted to lower-paying and less-secure jobs.

“India’s growth in fiscal year 2021/22, which ended in March 2022, was 8.7 per cent, with the release of pent-up demand late last year following the mid-2021 wave of the pandemic offset by weakness in early 2022, “it said, while highlighting that the focus of government spending has shifted toward 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 report noted that rising inflationary pressures led to an unscheduled policy rate hike in May. A rise in prices across all items, from fuel to vegetables and cooking oil, pushed WPI, or wholesale price-based inflation, to a record high of 15.08 per cent in April and retail inflation to a near eight-year high of 7.79 per cent.

High inflation prompted the Reserve Bank to hold an unscheduled meeting to raise the benchmark interest rate by 40 basis points to 4.40 per cent last month, and another hike is expected on Wednesday.

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