World Bank expects India to grow 5.7% in this fiscal

Written by fe Bureau | New Delhi | Updated: Jun 14 2013, 06:37am hrs
The World Bank on Thursday forecast modest economic growth of 5.7% for India during 2013-14 compared to 5% last year as global recovery remains fragile.

However, it said commodity-importing countries, such as India, will benefit from the recent decline in prices.

With a slow recovery in the Indian economy, growth in South Asia is estimated at 5.2% for this fiscal compared to 4.8% last year.

Regional growth will be driven mainly by a projected pick-up in India, whose GDP in factor cost terms is projected to grow 5.7% in the 2013 fiscal ending in March 2014, and then accelerate to 6.5% and 6.7% in FY14 and FY15, respectively. Exports and private investment, which slowed sharply in 2012, are projected to strengthen during 2013-15 and provide a boost to growth, World Bank said in its Global Economic Prospects report.

Despite below-potential growth, India fares well compared to the global GDP growth forecast of 2.2% for 2013, but lags behind that for East Asia, which includes China. World Bank said that much of the recovery in South Asian nations, such as India, will depend on the pace of policy and fiscal reforms, and remains subject to significant uncertainty and downside risks. Some upside risks to the outlook include a faster-than-projected pick-up in global demand and a

larger-than-expected decline in commodity prices," it added.

Indias current account deficit is estimated to recede to 4.2% in 2013-14 from 5.4% last year, the bank said.

The World Bank, however, warned that political obstacles to passing and implementing reform legislation pose downside risks to the growth outlook.

Reforms to the process of land acquisition for industrial projects and labour market reforms could prove contentious, it said.

An upside risk to South Asias growth outlook includes a significant decline in commodity prices compared to the baseline. If crude oil prices were to fall to an average level of $80 per barrel by mid-2014 due to additional supplies coming on stream in international markets, South

Asias GDP would be 0.9% higher than in the baseline by 2014, the current account deficit would be 1.4% of

GDP, and fiscal deficit 0.7% of GDP.

In countries either exiting (Pakistan) or entering electoral cycles (Bangladesh, India, Nepal), spending pressures associated with elections could boost fiscal expenditure, adding to inflationary pressures and both internal and external imbalances. Risks in the post-election period include the possibility that past reforms are reversed or implementation delayed," it added.

Weaker-than-expected monsoon rains present another downside risk for South Asia. A second poor monsoon in a row would adversely affect rural incomes and employment, contribute to persistence of food inflation and, in turn, overall inflation and could reduce overall GDP growth by 0.5 percentage points or more. Moreover, weaker rural income growth would increase the need for public spending, which could make it difficult to achieve fiscal targets, it added.