World Bank raises India’s FY23 growth forecast to 6.9% | The Financial Express

World Bank raises India’s FY23 growth forecast to 6.9%

India’s relative resilience also owes much to the domestically-focused nature of its economy, which is less exposed to external trade.

World Bank raises India’s FY23 growth forecast to 6.9%
Both the Bank and Fitch have cited better-than-anticipated growth rate of 6.3% in the September quarter as one of the key reasons for their latest bullish projections for India's FY23 growth.

The World Bank on Tuesday raised its FY23 growth forecast for India by 40 basis points to 6.9%, citing the economy’s relative resilience to external headwinds and the “strong” growth out-turn in the September quarter. This is the first upgrade of India’s FY23 growth forecast by any multilateral body this year, following a series of downward projections in recent months due to global turmoil.

The Bank itself had trimmed its growth forecast for India in October to 6.5% from 7.5%. It also revised up its FY24 forecast for the country by 10 basis points to 6.6%.

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The International Monetary Fund has predicted 6.8% growth for India in FY23, and most independent agencies expect it to be between 6.6% and 7%. Chief economic advisor V Anantha Nageswaran last week said the growth in the current fiscal could touch 6.8-7%. Meanwhile, global rating agency Fitch on Tuesday retained its growth forecast for the country at 7% for FY23. 

However, it has revised down the FY24 forecast for India by 50 basis points to 6.2%.

Both the Bank and Fitch have cited better-than-anticipated growth rate of 6.3% in the September quarter as one of the key reasons for their latest bullish projections for India’s FY23 growth.

In its India Development Update, the World Bank also stated that the Centre is poised to meet its fiscal deficit target of 6.4% of the GDP for FY23, thanks to robust revenue collections. The public debt will likely drop to 84.3% of GDP in FY23 from a peak of 87.6% in the pandemic year (FY21), it said.

Auguste Kouame, World Bank’s country director in India, said: “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.”

India’s relative resilience also owes much to the domestically-focused nature of its economy, which is less exposed to external trade.

“Policy reforms and prudent regulatory measures have also played a key role in developing resilience in the economy,” the World Bank report said.

Still, caution is needed. “A challenging external environment will affect India’s economic outlook through different channels…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 said.

The report stated that India also remains affected by spillovers from the US, Euro area and China. It revealed that 1 percentage point decline in growth in the US is associated with a 0.4 percentage point fall in India’s growth; of course, the effect is around 1.5 times larger for other emerging economies. The analysis of spillovers from the EU and China also yields similar results, it added.

“The slowdown in advanced economies (AEs) could also position India as a more attractive alternative investment destination. The government is also expected to introduce new production-linked investment incentives and fiscal measures to encourage foreign investment in various sectors of the economy,” the Bank said.

With the RBI raising policy rates, the widening interest-rate differential with the US Federal Reserve could also help prevent capital outflows from India, it added.

On the external front, it said, the income elasticity of India’s exports is high and thus exports are susceptible to the global growth slowdown.

India is also a net importer of crude oil and elevated global commodity prices will continue to weigh on domestic inflation, constraining domestic activity, it said.

Also read: Fitch Ratings raises India’s GDP growth forecast to 7% for FY 23; consumption, investment better than expected

However, the recent decline in commodity prices may dampen inflationary pressures.

For its part, Fitch expects India’s retail inflation to rise to 6.5% in the current fiscal, against 5.7% in FY22, before easing to 5% in FY24. It also expects the RBI to raise the repo rate by another 25 basis points this fiscal to 6.15% and hold on to the rate in FY24.

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First published on: 07-12-2022 at 01:00 IST