World Bank slashes India's FY23 growth forecast to 7.5%

Washington: The World Bank on Tuesday slashed India's economic growth forecast for the current fiscal to 7.5 percent as rising inflation, supply chain disruptions and geopolitical tensions may offset buoyancy in recovery.

"In India, growth is forecast to edge down to 7.5 percent in the 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," the World Bank said in its latest issue of the Global Economic Prospects.

This forecast reflects a 1.2 percentage point downward revision of growth from the January projection, the bank added.

"Growth is expected to slow further to 7.1 percent in 2023-24 back towards its longer-run potential," it noted.

This is the second time that the World Bank has revised its GDP growth forecast for India in the current fiscal 2022-23 (April 2022 to March 2023).

The Bank's Global Prospects Report reduced India's growth by 0.5 percent from the 8 percent forecast made in April when the impact of the Ukraine conflict was just beginning to be felt, and 1.2 percent from the 8.7 percent forecast in January.

It estimated India's growth in the last fiscal year at 8.7 percent.

For the global economy as a whole, the report cut the growth rate by 1.2 percent — from the 4.1 percent forecast in January to 2.9 percent.

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

According to the World Bank report, growth in India 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 unemployment rate has declined to levels seen prior to the pandemic, but the labor force participation rate remains below pre-pandemic levels and workers have shifted to lower-paying jobs.

World Bank President David Malpass, in his foreword to the report, said after multiple crises, long-term prosperity will depend on returning to faster growth and a more stable, rules-based policy environment.

"There is good reason to expect that, once the war in Ukraine stops, efforts will redouble - including by the World Bank Group - to rebuild the Ukrainian economy and revive global growth.," he said.

"The surge in energy and food prices, along with the supply and trade disruptions triggered by the war in Ukraine and the necessary interest-rate normalization now underway, account for most of the downgrade," Mr Malpass added.