World Bank trims India’s growth to 4.7 per cent

The World Bank has pared the country’s real GDP growth to 4.7 per cent for the ongoing fiscal 2013-14 in its staff study, India Development Update: October2013, from 6.1 per cent in the earlier ID Update for April last. The IDU October has placed the growth rate at 6.2 per cent for the next fiscal 2015, which too is lower than 6.7 per cent assessed in IDU April. The assessment coming after 4.25 per cent for the ongoing fiscal and 5 per cent for the next fiscal for the country in the October WEO Update of IMF, another world agency, underlines a rather steeper than expected downturn of the economy. The growth rate for the ongoing fiscal, if it is realised, would be the lowest after fiscal 2003 when the economy had expanded 3.9 per cent.

The India Development Update is published twice yearly and gives an overview of developments in the Indian economy in a global context, and also highlights topics related to medium- and long-term growth which are in recent public debate.

“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, and added, “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”.

Although the output growth in the first quarter of the current fiscal year fell to 4.4 per cent, says the study, it is expected to rebound strongly in the second half of the year with core inflation trending down, a bumper crop expected in agriculture (where a 5 per cent increase in area sown is expected to raise agricultural growth to 3.4 per cent from 1.9 per cent a year ago), and exports likely to benefit substantially from the rupee’s depreciation. Growth is expected to improve further in the medium term as strengthening exports support a recovery in industrial activity and new investment projects come on stream. The study’s projections assume an improvement in the global macroeconomic environment, with global growth accelerating to above 3 per cent in 2014 from around 2 per cent in calendar 2013.

On the turmoil in the forex markets during recent months that witnessed sharp rupee erosion, the report says that although the recent market turmoil has been driven primarily by external factors, it has magnified India’s macroeconomic vulnerabilities. India’s below-potential GDP growth, due to continued slowdown in investment, high current account deficit with growing structural vulnerabilities, rising food and fuel prices, and an improving but still elevated fiscal deficit, have added to investor fears about the economy’s ability to cope well with external shocks.