India’s growth, according to the World Bank, is expected to be limited by slower consumption growth. (File)
New Delhi:
The World Bank, in its latest India Development Update report, has cut India’s growth forecast for 2023-2024 from 6.6 percent to 6.3 percent.
India’s growth is expected to be constrained by slower consumption growth and difficult external conditions, according to the World Bank.
“Rising borrowing costs and slower income growth will weigh on private consumption growth, and government consumption is expected to grow at a slower pace due to the withdrawal of pandemic-related fiscal support measures,” it said in a press release Tuesday.
However, it maintained that India’s growth remains resilient despite some signs of a slowdown. It notes that while there are still significant challenges in the global environment, India has been one of the fastest growing economies in the world.
“The Indian economy remains highly resilient to external shocks,” said Auguste Tano Kouame, World Bank country director in India.
“Despite external pressures, Indian service exports have continued to increase and the current account deficit is narrowing,” Kouame added.
Turning to Indian inflation, it said, while headline inflation is high, it is expected to fall to an average of 5.2 percent in 2023-24 amid declining global commodity prices and some moderation in domestic demand.
“The Reserve Bank of India has withdrawn accommodative measures to curb inflation by raising policy rates. India’s financial sector also remains strong, supported by improvements in asset quality and robust credit growth in the private sector,” it said. press release.
Retail inflation in India fell slightly, but remained above the RBI’s 6 percent upper bound for the second consecutive month in February 2023, with the consumer price index at 6.44 percent. In January retail inflation was 6.52 percent.
Indian retail inflation has been above the RBI’s target of 6 percent for three consecutive quarters and had only managed to fall back to the RBI’s comfort zone by November 2022.
At the RBI’s last Monetary Policy Committee (MPC) in early February, it decided to raise the repo rate, the rate at which it lends to banks, by 25 basis points to 6.5 percent to keep inflation under control. So far, RBI has raised the repo rate, the rate at which it lends to banks, by 250 basis points cumulatively since May 2022.
Further, the World Bank said that the Indian government is likely to meet its budget deficit target of 5.9 percent of GDP in 2023-24.
The government deficit is also expected to decrease. As a result, the debt ratio is expected to stabilize.
The current account deficit is expected to narrow to 2.1 percent of GDP, from an estimated three percent in the just-closed 2022-23 period, on the back of robust service exports and a narrowing trade deficit, the World Bank said.
“Spillovers from recent financial market developments in the US and Europe pose a risk to short-term investment flows to emerging markets, including India,” said Dhruv Sharma, senior economist at the World Bank and the report’s lead author, adding: “ But Indian banks remain well capitalized.”
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