In India update, World Bank lifts GDP growth forecast to 6.9

%This revision in its FY23 GDP forecast comes two months after the Bank had cut India’s FY23 GDP forecast to 6.5 per cent from 7.5 per cent in an October update, which came in the wake of a series of growth downgrades by rating agencies, investment banks and other multilateral institutions.THE WORLD Bank raised its gross domestic product (GDP) growth forecast for India during the current financial year (FY23) to 6.9 per cent from 6.5 per cent, citing the economy’s relative resilience to external headwinds, and “a strong out-turn” in the second quarter of the current financial year.This revision in its FY23 GDP forecast comes two months after the Bank had cut India’s FY23 GDP forecast to 6.5 per cent from 7.5 per cent in an October update, which came in the wake of a series of growth downgrades by rating agencies, investment banks and other multilateral institutions.“India’s economy has been remarkably resilient to the deteriorating external environment, and strong macroeconomic fundamentals have placed it in good stead compared to other emerging market economies,” Auguste Tano Kouame, World Bank’s country director in India, said in the agency’s latest India Development Update, “considering a strong out-turn in India in the second quarter (July-September) of the 2022-23 financial year”.The report forecasts that the economy will grow at a slightly lower rate of 6.6 per cent in fiscal FY24 from the earlier projected 7 per cent.A challenging external environment will affect India’s economic outlook through different channels, the update said. It noted that rapid monetary policy tightening in advanced economies has already resulted in large portfolio outflows and depreciation of the Indian Rupee, while high global commodity prices have led to a widening of the current account deficit.It argued that India’s economy is “relatively insulated from global spillovers compared to other emerging markets”, partly because the country has a large domestic market and is relatively less exposed to international trade flows.It noted that India’s external position “has also improved considerably over the past decade” and that the current-account deficit is “adequately financed by improving foreign direct investment inflows and a solid cushion of foreign exchange reserves”. “However, continued vigilance is required as adverse global developments persist,” it said.India’s GDP had expanded 6.3 per cent in the September quarter, slower than the 8.4 per cent growth a year ago, as manufacturing output spluttered and the base effect waned, official data released last week showed. The September print was, however, better than analysts’ expectations, which was one of the reasons cited by the World Bank for its latest growth upgrade.In its October South Asia Economic Update, the World Bank had cited the spillovers from the Russia-Ukraine war and the tightening of global monetary policy as factors weighing on India’s economic outlook — as it slashed the country’s growth estimate by one percentage point to 6.5 per cent for FY23. That was the lowest growth estimate by any multilateral agency for FY23 at that time.In the October update, the multilateral lending agency also said economic growth in India would slow in FY23 because the country was coming off a strong recovery in FY22. “…elevated inflation on the back of higher prices of key commodities and rising borrowing costs will affect domestic demand, particularly private consumption in FY2023/24, while slowing global growth will inhibit growth in demand for India’s exports,” the Bank had said.It has added that private investment growth in India was likely to be dampened by heightened uncertainties and higher financing costs.A week prior to the World Bank’s October 6 Update, the Reserve Bank of India had pared its growth estimate for FY23 to 7 per cent from 7.2 per cent estimated earlier.In its latest December 5 report, the World Bank noted that the impact of a tightening global monetary policy cycle, slowing global growth and elevated commodity prices will mean that the Indian economy will experience lower growth in FY23 compared to FY22.Despite these challenges, the fresh update expects India to register a strong GDP growth and remain one of the fastest growing major economies in the world, due to robust domestic demand.On Tuesday, Fitch Ratings retained India’s economic growth forecast at 7 per cent for the current fiscal, saying India could be one of the fastest-growing emerging markets this year. But it cut the projections for the next two financial years, stating that even though the country is shielded to some extent from global economic shocks, it is not impervious to global developments.This article was originally published by Indianexpress