The World Bank cuts India’s GDP growth projection to 6.3 percent in its latest India update released on Tuesday, a 0.3 percentage point reduction from its previous projection in December 2020 citing rising borrowing costs and slower income growth are expected to weigh on private consumption growth. It is further stated that government consumption is projected to grow slower due to the withdrawal of pandemic-related fiscal support measures.
The report projects that the government is likely to meet its fiscal deficit target of 5.9 percent of GDP in this fiscal and combined with the consolidation in state government deficits, the general government deficit is also projected to decline along with the narrowing of the Current Account Deficit. The CAD (Current Account Deficit) is projected to narrow to 2.1 percent of GDP from an estimated 3 percent in FY23 on the back of robust service exports and a narrowing good trade deficit.
Pertaining to inflation, the World Bank Report expect it to ease to 5.2%, against 6.6% in the current fiscal amid easing global commodity prices and moderation in domestic demand. Besides, the update noted that the Reserve Bank of India (RBI) has withdrawn accommodative measures to rein in inflation by hiking the policy interest rate. India’s financial sector also remains strong, buoyed by improvements in asset quality and robust private-sector credit growth. Since May last year, the Reserve Bank of India has been hiking interest rates to control inflation.
The senior economist at World Bank, Dhruv Sharma said that Spillovers from recent development financial markets in the US and Europe pose a risk to short term investment flows to emerging markets, including India. But Indian banks remain well capitalized. According to analysts and economists, a surge in India’s service exports, which hit a record high in the October-December quarter, is expected to shield the economy from external risks as a slowing global economy will likely weigh on the country’s merchandise exports.