World Bank Cuts India’s Growth Projection To 6 Percent
After a broad-based deceleration in the initial quarters of this fiscal year, India's growth rate is projected to fall to 6 percent, the World Bank said on Sunday. In 2018-19, the growth rate of the country stood at 6.9 percent.
However, the bank in its latest edition of the South Asia Economic Focus said the country was expected to gradually recover to 6.9 percent in 2021 and 7.2 percent in 2022 as it assumed that the monetary stance would remain accommodative, given benign price dynamics.
The report, which has been released ahead of the annual meeting of the World Bank with the International Monetary Fund, noted India's economic growth decelerated for the second consecutive year.
In 2018-19, it stood at 6.8 percent, down from 7.2 percent in the 2017-18 financial year. While industrial output growth increased to 6.9 percent due to a pick-up in manufacturing and construction activities, the growth in agriculture and the services sector moderated to 2.9 and 7.5 percent, respectively.
The World Bank report also noted that the current account deficit had widened to 2.1 percent of the gross domestic product in 2018-19 from 1.8 percent a year before, mostly reflecting a deteriorating trade balance.
The report, however, said disruptions brought about by the introduction of the Goods and Services Tax and demonetisation, combined with the stress in the rural economy and a high youth unemployment rate in urban areas may have heightened the risks for the poorest households. The significant slowdown in the first quarter of the fiscal year and high frequency indicators, thereafter, suggested that the output growth would not exceed 6 percent for the full fiscal year, the bank said. The report said the consumption was likely to remain depressed due to slow growth in rural income, domestic demand (as reflected in a sharp drop in sales of automobiles) and credit from non-banking financial companies.
However, the investment would benefit from the recent cut in effective corporate tax rate for domestic companies in the medium term, but also will continue to reflect financial sector weaknesses, the report said.
Growth is expected to gradually recover to 6.9 percent in 2020-21 and 7.2 percent in 2021-22 as the cycle bottoms-out, rural demand benefits from effects of income support schemes, investment responds to tax incentives and credit growth resumes. However, exports growth is expected to remain modest, as trade wars and slow global growth depresses external demand," the report said.
The main policy challenge for India is to address the sources of softening private consumption and the structural factors behind weak investment, the bank said. "This will require restoring the health of the financial sector through reforms of public sector banks' governance and a gradual strengthening of the regulatory framework for NBFCs, while ensuring that solvent NBFCs retain access to adequate liquidity.