The World Bank on Thursday cut India's economic growth forecast by a percentage point, to 6.5% from 7.5%, according to its Regional Economic Updates.
It joins a legion of institutions such as the International Monetary Fund and the Reserve Bank of India to cut India's growth forecasts as the world teeters on the brink of a recession in advanced economies.
Last week, the Reserve Bank of India cut India's growth forecasts by 0.2 percentage points from 7.2% to 7%.
In India, a financial year (FY) runs from April to March. Therefore, FY23 corresponds to April 2022 to March 2023.
The World Bank says that in FY23, India will have shown a strong but unfinished economic recovery from the pandemic. However, going forward, India would be weighed down by the spillover from the ongoing Russia-Ukraine crisis. The global monetary policy tightening - a global exercise by central banks to increase interest rates - would also be a headwind for India.
These would factor into India's commodity prices and keep inflation high, while higher interest rates locally would bite into domestic demand. Further, reduced demand abroad would further limit India's exports.
Inflation - or the rise in consumer prices - would also be elevated this FY, at 7.1%.
However, India has several tailwinds too. The report gives a thumbs up to the improved balance sheets of banks and corporations, more capacity utilisation in manufacturing and the government's Production Linked Incentives scheme. But all of them would be weighed down by slowing investments from abroad brought about by growing global uncertainty.
Next FY (FY24), growth is expected to pickup at 7% while inflation is expected to dampen to 5.2%, within the tolerance bands of 4% with a two percentage point leeway in either direction.
The regional updates shared the estimates for some of India neighbours too.
The Sri Lankan economy, in the midst of a basket of economic woes, is expected to contract 9.2% this year, with its inflation rate touching 45.6%. "Debt restructuring and the implementation of a deep structural reform program are critical for economic stabilization. The crisis is expected to increase poverty substantially, making mitigation efforts a key priority", the report says.
That would not be enough for Sri Lanka to be out of the woods, as it faces yet another contraction in 2023 at 4.2%, where its inflation rate is expected to touch 23.8%. Only in 2025 would it grow 1%.
Pakistan saw strong growth in its FY22 (which runs from July to June), but it would face further inhibitions due to the floods the country recently saw. The report also says that Pakistan still remains prone to political instability and policy slippages. While Pakistan grew 6.2% in its FY22, it will slow substantially to 2% in FY23. However, while it saw high prices last year at 12.2%, it would be even worse this (financial) year at 23%
Notably, Pakistani agriculture would take a significant hit due to the floods. As a sector, it is expected to decline 1.8%, especially in crops like cotton, dates, wheat and rice.
Pakistan remains a recipient of an International Monetary Fund assisstance program, and the outlook remains a function of Pakistan remaining on track to meet its obligations.
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