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

The World Bank on Thursday projected a 6.5 percent growth rate for the Indian economy for the 2022-23 fiscal year, a 1 percent drop from previous projections in June 2022, citing the deteriorating international environment.

In its latest South Asia Economic Focus, released ahead of the annual meeting of the International Monetary Fund and World Bank, the Bank, however, noted that India is recovering more strongly than the rest of the world.

The Indian economy grew by 8.7% the previous year.

“The Indian economy has fared well compared to other South Asian countries, with relatively strong growth… it has recovered from the sharp contraction suffered during the first phase of COVID,” Hans Timmer, Chief Economist at the World Bank for South Asia, in an interview.

India, he said, has done relatively well with the advantage that it does not have a large external debt, there are no problems on that side and that there is a prudent monetary policy, he pointed out.

The Indian economy has performed particularly well in the services sector and, above all, in the export of services.

“But we have lowered the forecasts for the fiscal year that has just started and that is largely because the international environment is deteriorating for India and for all countries. We see a kind of tipping point in the middle of this year, and the first signs of a slowdown around the world, “he said.

The second half of the calendar year is weak in many countries and will be relatively weak in India as well, he said.

Service sector activity in India falls in September to its lowest level in six months

Timmer said this is mainly due to two factors. One of them is the slowdown in the growth of the real economy in high-income countries.

The other is the tightening of global monetary policy, which tightens financial markets and not only causes capital outflows in many developing countries, but also increases interest rates and uncertainty in developing countries, which has a negative impact on investments.

The Indian economy has performed particularly well in the services sector and, above all, in the export of services.

“So she (India) has done relatively well. It is not as vulnerable as other countries. But it is still in difficult weather conditions. She (India) has to navigate higher commodity prices and there are more headwinds at the moment,” she said in response to a question.

India is doing better than the rest of the world, he said, adding that there are more buffers in India, especially large reserves in the central bank. That’s very helpful.” “So the government reacted very actively to the COVID-19 crisis,” she said.

The Indian government has set an example to the rest of the world of how to expand social safety nets, using digital ideas. “I think it’s almost a million people who are reaching out right now. It’s also a good answer,” he said.

At the same time, he said that he does not agree with all the policies of the Indian government.

“Especially its reaction to high commodity prices may seem logical in the short term, but it may have a long-term reaction. For example, the wheat export ban and the export ban or the very high tariffs on rice exports,” he said.

“They seem logical to create food security internally, but ultimately it creates more problems in the rest of the region and in the rest of the world.

“So not all policies are great, but a strong reaction to the crisis in terms of relief efforts, strong monetary policies and generally a trend towards a more business-friendly environment,” Timmer said.

In response to a question, he said that, like India, some of the key issues needed to be addressed.

“Although we see a relatively favorable growth rate, it is growth that is only supported by a small part of the economy. It sounds good, but if it doesn’t come from a much broader base, that growth rate for a relatively small part of the economy doesn’t translate into significant income growth for all households, he said.

Timmer pointed out that only 20% of women participate in the labor market.

“That is a problem that needs to be solved. It is not solved by expanding the social security system. That is important. Ultimately, you have to give people the tools to generate income for themselves,” he said.

The Indian government has set an example to the rest of the world of how to expand social safety nets, using digital ideas

“What we have seen in the region, and to some extent also in India, is that the government was not really prepared to absorb all the crises that we are seeing in the region. The COVID-19 shock, the war in Ukraine, and commodity prices are once-in-a-lifetime shocks, one after another, just like environmental disasters,” he said.

Both the government and the population are not prepared to face them. And that’s because so few people fully participate in the economy, he argued, adding that this is a high priority for India to make progress in that regard.

“In India, the focus is on existing large companies. The focus is on FDI. And all of that is very good. The focus is on social safety nets. That is also very good. But it’s not enough. You have to integrate more people into the economy,” Timmer said.

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