Why the World Bank slashed India's GDP forecast for 2022-23

GDP

Indian Market
by 5paisa Research Team Last Updated: 2022-10-07T09:04:39+05:30

In 2022-23, India is likely to grow slower than earliest expected, or at least that is what the World Bank thinks. 

The World Bank has slashed India’s annual Gross Domestic Product (GDP) growth outlook for 2022-23 from 7.5% to 6.5%. 

The World Bank cautioned that a spillover effect from the war in Ukraine and global monetary tightening will weigh on the Indian economy. 

What more has the World Bank said?

In its latest South Asia Economic Focus released ahead of the annual meeting of the International Monetary Fund and the World Bank, the Bank, however, noted that India is recovering stronger than the rest of the world.

"The Indian economy has done well compared to the other countries in South Asia, with relatively strong growth performance... bounced back from the sharp contraction during the first phase of COVID," Hans Timmer, World Bank Chief Economist for South Asia, told Press Trust of India in an interview.

What did Timmer have to say about the sectoral performance of the Indian economy?

India, he said, has done relatively well with the advantage that it doesn't have a large external debt and that there is prudent monetary policy.

The Indian economy has done especially well in the services sector and especially service exports.

How fast did the Indian economy grow last year?

The Indian economy grew by 8.7% last year.

So, why this downgrade?

Timmer said the bank downgraded the forecast for the fiscal year that just started largely because the international environment is deteriorating for India and for all countries. "We see kind of an inflection point in the middle of this year, and first signs of slowing across the world," he said.

The second half of the calendar year is weak in many countries and will be relatively weak also in India, he said.

Timmer said that's mainly because of two factors. One is the slowing of growth in the real economy of high-income countries.

The other one is the global tightening of monetary policy that tightens financial markets and not just that it leads to capital outflows in many developing countries, but it also increases interest rates and uncertainty in developing countries which has a negative impact on investment.

But is India extremely vulnerable?

Not really, at least according to Timmer.

India is doing better than the rest of the world, he said, adding that there are more buffers in India, especially large reserves at the central bank. That's very helpful. "Then the government has very actively reacted to the COVID crisis," he said.

He said the Indian government has set an example for the rest of the world, like expanding social safety nets, using digital ideas. "I think it's almost up to a million people that they are reaching at the moment. It's a good response also," he said.

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