India’s growth to slow down to 6.3 pc, warns World Bank
Growth to be constrained by slower consumption, challenging external conditions
Growth to be constrained by slower consumption, challenging external conditions
Growth to be constrained by slower consumption, challenging external conditions
Growth to be constrained by slower consumption, challenging external conditions
India’s GDP growth will slow down to 6.3 per cent this financial year, said the World Bank. This is a revision of the international financial body’s own earlier projection of 6.6 per cent.
Growth is expected to be constrained by slower consumption growth and challenging external conditions. Rising interest rates due to the hike in repo rates and slower income growth will impact private spending, while government consumption is projected to grow at a slower pace due to the withdrawal of pandemic-related fiscal support measures.
“The Indian economy continues to show strong resilience to external shocks," said Auguste Tano Kouame, World Bank's country director in India. “Notwithstanding external pressures, India’s service exports have continued to increase, and the current-account deficit is narrowing.”
Despite its resilience even after growth slows in developed economies of Europe and North America, the headwinds will affect India’s growth in the financial year 2024, the World Bank noted in its 'India Development Report for Spring 2023', released in New Delhi on Tuesday.
“Recent financial sector turmoil in the US and Europe could reduce appetite for emerging market assets, trigger another bout of capital flight and put pressure on the Indian rupee,” the report noted, adding, “Tighter global financial conditions could also weigh on the risk appetite for private investment in India.”
Other worry points noted by the World Bank about the Indian economy include faster-than-severe inflation on food and fuel and the chances of an increase to the already high public debt vis-a-vis the GDP (India’s debt had ballooned to 87.5 per cent of GDP following Covid, though it has now projected to reduce to 83.4 per cent this FY).
“Spillovers from recent developments in financial markets in the US and Europe pose a risk to short-term investment flows to emerging markets, including India,” said Dhruv Sharma, senior economist, World Bank, and lead author of the report, referring to the collapse of banks in the US and the near-collapse of Credit Suisse in Europe. “But Indian banks remain well capitalised,” he assured.
India’s real GDP had grown 9.1 per cent in financial year 2022 (on the back of the lower base of the previous year which was all but washed away by the Covid-19 pandemic) before growth slowed down to a projected 6.9 per cent in financial year 2023 which just ended last week. Now the projection for next financial year predicts a further slowing down to 6.3 per cent.
This is especially worrisome as the main reason the World Bank cites is a reduction in private consumption, which means ordinary citizens will start worrying about future uncertainties enough to reduce their expenditure. The trend applies equally to corporate investments, rounded off with lesser spending on the part of the government.
The current account deficit will narrow to 2.1 per cent of GDP (from 3 per cent last year) due to slower import growth, which will be good news to the exchequer, though the reason for it may not be so — moderating domestic demand. A global slowdown would also mean India’s export growth will also tend to be muted.
World Bank officials admitted that they have not noted current developments like the cartel of petroleum producing nations, OPEC, deciding to cut production, while preparing this report, or the impact it may have on India’s finances, being a major oil importer. The OPEC move could see the price of a barrel of crude oil increase beyond $100 in no time (the price which was around $79 just a few days ago has already shot up to $85 in the international market since the announcement).
Growth is expected to be constrained by slower consumption growth and challenging external conditions. Rising interest rates due to the hike in repo rates and slower income growth will impact private spending, while government consumption is projected to grow at a slower pace due to the withdrawal of pandemic-related fiscal support measures.
“The Indian economy continues to show strong resilience to external shocks," said Auguste Tano Kouame, World Bank's country director in India. “Notwithstanding external pressures, India’s service exports have continued to increase, and the current-account deficit is narrowing.”
Despite its resilience even after growth slows in developed economies of Europe and North America, the headwinds will affect India’s growth in the financial year 2024, the World Bank noted in its 'India Development Report for Spring 2023', released in New Delhi on Tuesday.
“Recent financial sector turmoil in the US and Europe could reduce appetite for emerging market assets, trigger another bout of capital flight and put pressure on the Indian rupee,” the report noted, adding, “Tighter global financial conditions could also weigh on the risk appetite for private investment in India.”
Other worry points noted by the World Bank about the Indian economy include faster-than-severe inflation on food and fuel and the chances of an increase to the already high public debt vis-a-vis the GDP (India’s debt had ballooned to 87.5 per cent of GDP following Covid, though it has now projected to reduce to 83.4 per cent this FY).
“Spillovers from recent developments in financial markets in the US and Europe pose a risk to short-term investment flows to emerging markets, including India,” said Dhruv Sharma, senior economist, World Bank, and lead author of the report, referring to the collapse of banks in the US and the near-collapse of Credit Suisse in Europe. “But Indian banks remain well capitalised,” he assured.
India’s real GDP had grown 9.1 per cent in financial year 2022 (on the back of the lower base of the previous year which was all but washed away by the Covid-19 pandemic) before growth slowed down to a projected 6.9 per cent in financial year 2023 which just ended last week. Now the projection for next financial year predicts a further slowing down to 6.3 per cent.
This is especially worrisome as the main reason the World Bank cites is a reduction in private consumption, which means ordinary citizens will start worrying about future uncertainties enough to reduce their expenditure. The trend applies equally to corporate investments, rounded off with lesser spending on the part of the government.
The current account deficit will narrow to 2.1 per cent of GDP (from 3 per cent last year) due to slower import growth, which will be good news to the exchequer, though the reason for it may not be so — moderating domestic demand. A global slowdown would also mean India’s export growth will also tend to be muted.
World Bank officials admitted that they have not noted current developments like the cartel of petroleum producing nations, OPEC, deciding to cut production, while preparing this report, or the impact it may have on India’s finances, being a major oil importer. The OPEC move could see the price of a barrel of crude oil increase beyond $100 in no time (the price which was around $79 just a few days ago has already shot up to $85 in the international market since the announcement).