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Jan 12, 2023

World Bank Sees India Growth Slowing to 6.6% In FY24

In its latest Global Economic Prospects report, it said the global economy and rising uncertainty will weigh on export and investment growth in India.
A worker operates a hydraulic press machine at a workshop manufacturing flanges for automobiles in Mumbai, India, May 29, 2017. Photo: Reuters/Shailesh Andrade

New Delhi: The World Bank has estimated that India’s economic growth will slow to 6.6% in the financial year (April to March) 2023-24 from an expected 6.9% in the current fiscal.

In its latest Global Economic Prospects report, it said the global economy and rising uncertainty will weigh on export and investment growth in India.

Increased infrastructure spending and “business facilitation measures” will, however, crowd-in private investment and support the expansion of manufacturing capacity, it added, according to Reuters.

India is expected to be the fastest-growing economy of the seven largest emerging markets and developing economies, it said.

Beyond the fiscal year ending March 2024, growth in India is likely to slip back towards its potential rate of just over 6%, the bank added.

Globally, the bank is forecasting a sharp, long-lasting slowdown, with global growth declining to 1.7% in 2023 from the 3% expected just six months ago, Reuters reported.

“This reflects synchronous policy tightening aimed at containing very high inflation, worsening financial conditions, and continued disruptions from the Russian Federation’s invasion of Ukraine,” it said.

Also read: Why 2023 Promises to Be a Rough Year for India’s External Sector

India’s GDP estimates

In December, economists at Nomura estimated India’s GDP to slow down sharply to 5.1% in FY24, which, they said, would force the Reserve Bank of India to cut the key repo rate by 75 basis points. (A basis point is one-hundredth of 1 percentage point.)

Rajni Sinha, the chief economist with CARE Ratings, told Business Standard that India’s GDP growth is expected to slow down to around 6.1% in FY24, “considering the headwinds arising on the external front and its possible spillover on the Indian economy”.

Former RBI governor Raghuram Rajan, in conversation with Congress leader Rahul Gandhi, had said that FY24 is going to be a much tougher year for the economy than this fiscal.

Rajan’s FY24 GDP projections are even gloomier than the World Bank and the International Monetary Fund (IMF). The IMF has pegged India’s FY24 growth at 6.1%. He said that India will be “lucky” if it achieves 5% growth in the next fiscal.

“Pandemic was part of the problem but we were slowing before the pandemic. We had gone from 9% (growth a year) to 5%. And, we haven’t really generated reforms which will generate growth,” the Financial Express reported him as saying. He further added that the concentration of wealth is with a few industrialists and that we must fight for fair competition in the economy.

Separately, HSBC’s Pranjul Bhandari told the Indian Express that investment expenditures have grown slightly better, but most of this expenditure is just to replace the old investment, and not to create fresh ones. Moreover, private consumption, which accounts for 56% of all GDP, has barely grown.

Meanwhile, India’s retail inflation hovered over 7% (upper tolerance limit: 6%) for most of this year. The annual retail inflation for December rose 5.72% from 5.88% in the previous month.

Added to that, the bulk of India’s exports are not picking up. A high trade deficit pushed the country’s current account deficit to an all-time high of $36.4 billion, or 4.4% of the GDP, in the second quarter of FY23.

The World Bank’s projection comes a week after the National Statistical Office (NSO) released the first advance estimates of the GDP for FY23.

In its latest estimates released on January 6, the World Bank said that India may grow at 7% in FY23, which is higher than the projections made by the RBI and the World Bank. The RBI and the World Bank have projected 6.8% and 6.9% GDP growth, respectively, in FY23.

The first advance estimates of the GDP of any single year serve as an important input for the Union Budget that is prepared for the following year. However, the NSO provides as many as six iterations of its estimates for any single year. These numbers are released over a period of 36 months. And, there are significant variations in these numbers.

Note that the first advanced estimates also do not include the Q3 GDP data – which is published at the end of February as part of the second advance estimates.

Business Standard in its editorial called for an overhaul of the system of revising GDP estimates over three years.

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