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The World Bank has slashed India's GDP growth forecast to 6.5% from its original forecast of 7.5%, mainly on account of the ongoing Russia-Ukraine war, rising inflation, and interest rates.
This forecast is well below the 7-7.8% forecast of credit rating agencies like Fitch, Moody's, S&P, Ind-Ra, etc. However, it is in line with the conservative forecast of UNCTAD and the RBI's forecast of 7% for FY23.
Indian economic growth is set to slow down in FY23 since it is coming off a strong recovery in FY22. Global monetary tightening and the spillovers from Russia's operation in Ukraine will continue to weigh on India's economic outlook. Moreover, the slowing global demand will adversely affect Indian exports.
Elevated inflation and prices of key commodities rising alongside rising borrowing costs will affect domestic demand. Furthermore, private investment growth is also likely to dampen due to higher uncertainty and greater financing costs.
The international environment is deteriorating for all countries and not just India as the second half appears weak in several countries.
“The spillovers from the Russia-Ukraine war and global monetary policy tightening will continue to weigh on India’s economic outlook: elevated inflation on the back of higher prices of key commodities and rising borrowing costs will affect domestic demand, particularly private consumption in FY 2023/24 while slowing global growth will inhibit growth in demand for India’s exports,” the Bank said.
However, in the bank's latest South Asia Economic Focus, the bank has noted that India is recovering stronger than the rest of the world. Despite growing challenges, India has shown the strongest recovery when compared to the rest of the world. Moreover, India's sufficient foreign reserves have also served as a buffer from external shocks.
The World Bank has also downgraded the growth forecast of the entire South Asia region (consisting of India, Pakistan, Afghanistan, Bangladesh, Sri Lanka, Nepal, Bhutan, and the Maldives) from 6.8% in June to 5.8%.
Article by Aman Agarwal.
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