A rise in prices of all commodities from fuel to vegetables and cooking oil pushed wholesale price-based inflation to a record high of 15.08 per cent in April.
The World Bank on Tuesday slashed India’s economic growth forecast to 7.5 per cent for the current fiscal as rising inflation, supply chain disruptions and geopolitical tensions eased. This is the second time that the World Bank has revised its GDP growth forecast for India in the current fiscal year 2022-23 (April 2022 to March 2023). In April, it had lowered the forecast from 8.7 per cent to 8 per cent and is now forecast to be at 7.5 per cent.
The GDP growth is in comparison to an expansion of 8.7 per cent in the previous 2021-22 fiscal. “In India, growth is projected to slow to 7.5 per cent in FY 2022/23, with geopolitical tensions offset by rising inflation, supply chain disruptions and a spurt in recovery of services consumption from the pandemic,” The World Bank said in its latest issue of Global Economic Prospects.
It said growth will also be supported by certain investments made by the private sector and the government, which have introduced incentives and reforms to improve the business environment. The bank said the forecast reflects a 1.2 percentage point decline in growth from January’s estimate. “The slowing pace of growth is expected to reach 7.1 per cent in 2023-24, which is its long-term potential,” it said.
A rise in prices of all commodities from fuel to vegetables and cooking oil pushed wholesale price-based inflation to a record high of 15.08 per cent in April and retail inflation to an almost eight-year high of 7.79 per cent. High inflation prompted the Reserve Bank to hold an unscheduled meeting last month to raise the benchmark interest rate by 40 basis points to 4.40 per cent and another hike is expected on Wednesday.
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Before the World Bank action, global rating agencies also downgraded India’s economic growth forecast. Last month, Moody’s Investors Service cut its GDP estimate for calendar year 2022 to 8.8 percent from 9.1 percent, citing high inflation. S&P Global Ratings also lowered India’s growth forecast for 2022-23 to 7.3 per cent from 7.8 per cent, on rising inflation and a higher-than-expected Russia-Ukraine conflict. In March, Fitch lowered India’s growth forecast from 10.3 per cent to 8.5 per cent, while the IMF cut the forecast to 8.2 per cent from 9 per cent.
The Asian Development Bank (ADB) pegged India’s growth at 7.5 per cent, while the RBI in April cut the forecast to 7.2 per cent from 7.8 per cent amid volatile crude oil prices and supply chain disruptions due to the Russia-Ukraine war. According to a World Bank report, growth in India slowed in the first half of 2022 as activity was disrupted due to a rise in COVID-19 cases, more targeted mobility restrictions and the war in Ukraine. Recovery is facing difficulties due to rising inflation.
The unemployment rate has fallen to levels seen before the pandemic, but labor force participation rates have remained below pre-pandemic levels and workers have moved to lower-paying jobs. In India, the focus of government spending has shifted to infrastructure investment, labor regulations are being simplified, state-owned assets are being privatized, and the logistics sector is expected to be modernized and integrated. , said the bank.
World Bank President David Malpass said in the preface to the report that after several crises, long-term prosperity will depend on rapid growth and a return to a more stable, rules-based policy environment. “There is good reason to expect that, once the war in Ukraine stops, efforts will be doubled again – including those of the World Bank Group – to rebuild the Ukrainian economy and revive global growth.”
Global growth is expected to slow sharply from 5.7 percent in 2021 to 2.9 percent this year. “It also reflects a nearly one-third cut over our January 2022 forecast of 4.1 percent this year,” he said. “Rise in energy and food prices, along with supply and trade disruptions due to the war in Ukraine and necessary interest rate normalization, accounted for most of the downgrade,” Malpass said.
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