World Bank slashes India’s economic growth forecast to 6.5% for FY23

World Bank slashes India’s economic growth forecast to 6.5% for FY23: The World Bank reduced India’s real GDP growth prediction for 2022–2023 from 7.5% to 6.5% and stated that the impact of Russia’s invasion of Ukraine and the tightening of global monetary policy will negatively affect the country’s outlook for the economy.

India’s economic growth forecast to 6.5%: Key Points

• The World Bank reduced its growth projection for India to 6.5% for FY23, citing the consequences of the Russia-Ukraine conflict and ongoing global monetary policy tightening. This is the lowest growth forecast made for FY23 by any international organization.
• The effects of the conflict in Russia and Ukraine and the tightening of monetary policy around the world will continue to have a negative impact on India’s economic outlook in FY2023/24.
• Rising borrowing costs and elevated inflation due to higher prices for key commodities will have an adverse effect on domestic demand, particularly private consumption, while sluggish global growth will limit demand growth for India’s exports.
• Services exports have recovered more rapidly in India than anywhere else in the world, and the country’s large foreign reserve buffers have provided resilience to the country’s external sector.
• Moreover, due to ongoing geopolitical unrest and aggressive global monetary policy tightening, the Reserve Bank of India (RBI) has lowered its outlook for economic growth for the current fiscal year from 7.2% to 7%.
• In the first quarter of FY’23, real GDP increased by 13.5%, surpassing the pre-pandemic level by 3.8%. A strong rise in private consumption and investment demand supported this.
• In addition, a leading UN agency predicted that India’s economic growth would slow this year to 5.7% from 8.2% in 2021 due to greater finance costs and lower public spending.
• Also, India’s services sector activity reached a six-month low in September due to inflationary pressures and competitive conditions as new business inflows increased at their slowest rates.

Reasons for reduced economic growth

• Conflict in Russia and Ukraine
• Tightening of monetary policy
• Rising borrowing costs
• Covid-19 Pandemic
• Higher financing cost
• Weaker public expenditures
• Supply chain disruptions
• Geopolitical tensions
• Inflationary pressures
• Reduced consumption