After IMF, World Bank now cuts India GDP growth forecast to 4.7 per cent

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Last week, the IMF had projected an average growth rate of about 3.75 per cent in market prices for India in 2013-14. Last week, the IMF had projected an average growth rate of about 3.75 per cent in market prices for India in 2013-14.
SummaryThe report - India Development Update - expects India's GDP to accelerating to 6.2% in FY2015.

Close on the heels of the IMF, the World Bank on Wednesday slashed India's economic growth forecast for the current financial year to 4.7 per cent from an earlier projection of 6.1 per cent.

"The report (India Development Update) expects real GDP to expand by 4.7 per cent (at factor cost) this fiscal year before accelerating to 6.2 per cent in FY2015," said Martin Rama, the World Bank's chief economist for South Asia.

In April, the World Bank had projected India's GDP would grow at 6.1 per cent in the current financial year and at 6.7 per cent the following year.

Last week, the International Monetary Fund (IMF), in its World Economic Outlook, projected an average growth rate of about 3.75 per cent in market prices for India in 2013-14, which is expected to pick up to 5.1 per cent next year.

India's GDP growth slowed to 5 per cent in the year ended March from an average of 8 per cent over the past decade.

The World Bank said the pace of economic activity in 2013-14 will be hampered by a weak outturn during the first quarter.

In addition, two consecutive months (July-August) of negative business sentiment and higher interest rates may curb the potential for recovery in the second quarter of 2013-14 even after manufacturing output rebounded in July.

"Although output growth in the first quarter of the current fiscal year fell to 4.4 per cent, growth is expected to rebound strongly in the second half of 2013-2014 with core inflation trending down, a bumper crop expected in agriculture, and exports likely to benefit substantially from the rupee's depreciation," Rama said.

A 5 per cent increase in the area sown is expected to raise agricultural growth to 3.4 per cent from 1.9 per cent a year ago, he added.

Rama said 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.

"India's growth potential remains high but its macroeconomic vulnerabilities Ė high headline inflation, an elevated current account deficit, and rising pressure on fiscal balances from the depreciation of the rupee Ė could impact the speed of economic recovery," said Denis Medvedev, senior country economist for the World Bank, India.

While market sentiment has improved in the past few weeks, challenges remain, highlighting the importance of prudent macroeconomic policies and continued reforms to set strong foundations

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