Virendra Pandit
New Delhi: Two international agencies, the World Bank and Asian Development Bank, have downgraded their GDP-based economic growth rates for India for the current financial year (2023-24) by 30 to 80 basis points, respectively, the media reported on Tuesday.
While the World Bank lowered the FY24 growth forecast from 6.6 percent projected in December 2022 to 6.3 percent now, the ADB, citing risks ahead, revised it from 7.2 percent to 6.4 in the same period.
“Growth will likely be constrained by slower consumption growth and challenging external conditions. Rising borrowing costs and slower income growth will weigh on private consumption growth, and government consumption is projected to grow at a slower pace because of the withdrawal of pandemic-related fiscal support measures,” the World Bank said.
Releasing the India Development Update, Auguste Tano Kouame, World Bank’s Country Director in India, told reporters the Indian economy continues to show strong resilience to external shocks, notwithstanding “external pressures, India’s service exports have continued to increase, and the current-account deficit is narrowing.”
The headline inflation is expected to decline to an average of 5.2 percent in FY 24, amid easing global commodity prices and some moderation in domestic demand. The Reserve Bank of India has withdrawn accommodative measures to rein in inflation by raising the policy interest rates. India’s financial sector also remains strong, buoyed by improvements in asset quality and robust private-sector credit growth.
According to the World Bank’s Senior Economist Dhruv Sharma, the Centre is expected to meet its fiscal deficit target of 5.9 percent of GDP in FY24, and, combined with consolidation in state government deficits, the general government deficit may also decline. This might stabilize the debt-to-GDP ratio. Besides, the current account deficit (CAD) could narrow from an estimated 3 percent in FY23 to 2.1 percent of GDP now, because of robust service exports and a narrowing merchandise trade deficit.
But this deficit estimate has not factored in the possible impact on the crude oil bill due to a production cut announced by the OPEC countries. “An increase of USD10 a barrel could translate into a 40 basis point to half a percent increase in CAD,” Sharma said.
Replying to questions about the possible impact of crashing American and European banks on their Indian counterparts, he said that spill-overs from these financial market developments pose some risk to short-term investment flows to emerging markets like India. “But Indian banks continue to remain well capitalized and regulated,” he said.
According to the ADB, the growth moderation in FY23 is premised on the ongoing global economic slowdown, tight monetary conditions, and elevated oil prices.
Downgrading its projection for FY24, ADB said the next fiscal (FY25) is likely to see faster investment growth, because of supportive government policies and sound macroeconomic fundamentals, reduced non-performing loans (NPAs) in banks, and significant corporate deleveraging that will enhance bank lending.
The ADB has estimated the growth rate to be 6.7 percent in FY25.
“Despite the global slowdown, India’s economic growth rate is stronger than many peer economies and reflects relatively robust domestic consumption and lesser dependence on global demand,” ADB’s Country Director for India Takeo Konishi said.