World Bank slashes India’s economic growth forecast to 6.5% for FY23

The World Bank  cut its 2022-23 (FY23) real gross domestic product (GDP) growth forecast for India to 6.5%, from an earlier estimate of 7.5%, while warning that spillovers from Russia’s invasion of Ukraine and global monetary tightening will weigh on the economic outlook.

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The Undergoing Cause:

In its twice-a-year report on South Asia, the World Bank said, “Private investment growth is likely to be dampened by heightened uncertainty and higher financing costs.” The international financial institution also noted that slowing global demand will impact the country’s exports. This is the third time the World Bank has revised its GDP growth forecast for India in FY23. In June, it had slashed its FY23 GDP growth forecast for India to 7.5%. Earlier in April, it had trimmed the forecast from 8.7% to 8%.

The Other Forecasts:

The Reserve Bank of India (RBI) has recently cut the economic growth projection for the current fiscal to 7% from 7.2% estimated earlier on account of extended geopolitical tensions and aggressive monetary policy tightening globally. The RBI in April had cut GDP growth estimate to 7.2% from its earlier forecast of 7.8%.

Real GDP grew 13.5% in the first quarter of FY’23, surpassing the pre-pandemic level by 3.8%. This was led by robust growth in private consumption and investment demand. A top UN agency has also said that India’s economic growth will decline to 5.7% this year from 8.2% in 2021, citing higher financing cost and weaker public expenditures. “India experienced an expansion of 8.2% in 2021, the strongest among G20 countries. As supply chain disruptions eased, rising domestic demand turned the current account surplus into a deficit, and growth decelerated,” the report said.

India’s GDP will further decelerate to 4.7% growth in 2023, according to the forecast by the United Nations Conference on Trade and Development (UNCTAD) Trade and Development Report 2022.

India’s Service Sector Activity: A Critical Part:

Amid inflationary pressures and competitive conditions, India’s services sector activity fell to a six-month low in September, as new business inflows rose at the slowest rates since March. The seasonally adjusted S&P Global India Services PMI Business Activity Index fell to 54.3 in September, from 57.2 in August, highlighting the weakest rate of expansion since March. For the fourteenth straight month, the services sector witnessed an expansion in output. In Purchasing Managers’ Index (PMI) parlance, a print above 50 means expansion, while a score below 50 denotes contraction.

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