World Bank slashes India’s growth forecast to 4.7 per cent

17 Oct 2013

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Following a similar move by the International Monetary Fund (IMF) last week, the World Bank yesterday slashed India's growth forecast for the current fiscal year to 4.7 per cent from its earlier estimate of 6.1 per cent.

In its latest 'India Development Update' the World Bank says that the recent global market turmoil provides an opportunity to regain growth momentum for the economy through further reforms, and projects India's growth at 6.2 per cent in fiscal 2015.

Last week, the IMF pegged the country's economic growth at 3.8 per cent in 2013 down from 5.7 per cent earlier due mainly to poor consumer demand and a weakening of the manufacturing and service sector performances. (See: IMF pegs India 2013 growth at a low 3.75%)

"India's growth potential remains high but its macroeconomic vulnerabilities–high headline inflation, an elevated current account deficit, and rising pressure on fiscal balances from the depreciation of the rupee–could impact the speed of economic recovery,'' said Denis Medvedev, senior country economist, World Bank, India.

"While market sentiment improved in the last few weeks, the underlying challenges remain, underscoring the importance of prudent macroeconomic policies and continued progress on reforms to set strong foundations for accelerated growth in the future,'' he further stated.

According to the World Bank, India's higher current account and fiscal deficits, and slower growth have added to investors fears.

The Bank's chief economist for South Asia Martin Rama said: ''While the reform momentum has accelerated in the last few months, the current situation offers an opportunity to further strengthen the business environment and enhance fiscal space.''

Although the growth fell to 4.4 per cent in the first quarter of FY2014, it is expected to rebound strongly in the second half on the back of a possible downtrend in core inflation, a bumper agricultural production and boost in exports due to depreciation of the rupee.

The current projections assume global economic growth at around 2 per cent in calendar year 2013 accelerating to above 3 per cent in 2014.

The recent depreciation in rupee positions India to take advantage of the global recovery. However, it will require policy efforts in the areas of infrastructure, financial sector and regulatory environment, the Bank said.

The report noted that the pace of poverty reduction in India has accelerated, lifting 137 million people out of poverty  during the period 2005-2012 and achieving a rate of 22 per cent, but vulnerability remains high.

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