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World Bank cuts India’s economic growth forecast to 7.5% for FY23

The World Bank on Tuesday cut India’s economic growth forecast for the current fiscal to 7.5% as rising inflation, supply chain disruptions and geopolitical tensions taper recovery.

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). In April, it had trimmed the forecast from 8.7% to 8% and now it is projected at 7.5%.

The GDP growth compares to an 8.7% expansion in the previous 2021-22 fiscal.

“In India, growth is forecast to edge down to 7.5% 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.

Growth, it said, 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. 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% in 2023-24 back towards its longer-run potential,” it noted.

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

Prior to the World Bank’s action, global rating agencies too had slashed India’s economic growth forecast. Last month, Moody’s Investors Service trimmed the GDP projection to 8.8% for the calendar year 2022 from 9.1% earlier, citing high inflation.