Published on: June 13, 2022

INDIA’S ECONOMIC GROWTH FORECAST

INDIA’S ECONOMIC GROWTH FORECAST

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Hlybokaye The World Bank cut India’s economic growth forecast for the current fiscal to 7.5% as rising inflation, supply chain disruptions and geopolitical tensions taper recovery.

Highlights:

  • This is the second time that the World Bank has revised its GDP growth forecast for India in the current fiscal 2022-23 (April 2022 to March 2023). In April, it had trimmed the forecast from 8.7% to 8% and now it is projected at 7.5%.
  • The GDP growth compares to an 8.7% expansion in the previous 2021-22 fiscal.
  • This forecast reflects a 1.2 percentage point downward revision of growth from the January projection.
  • “Growth is expected to slow further to 7.1% in 2023-24 back towards its longer-run potential.
  • A rise in prices across all items from fuel to vegetables and cooking oil pushed WPI or wholesale price-based inflation to a record high of 15.08 per cent in April and retail inflation to a near eight-year high of 7.79%
  • High inflation prompted the Reserve Bank to hold an unscheduled meeting to raise the benchmark interest rate by 40 basis points to 4.40% last month and another hike to 4.9% this month.

World Bank’s report

  • According to the World Bank report, growth in India slowed in the first half of 2022 as activity was disrupted both by a surge in COVID-19 cases, accompanied by more-targeted mobility restrictions and by the war in Ukraine. The recovery is facing headwinds from rising inflation.
  • The unemployment rate has declined to levels seen prior to the pandemic, but the labour force participation rate remains below pre-pandemic levels and workers have shifted to lower-paying jobs.
  • In India, the focus of government spending has shifted toward infrastructure investment, labour regulations are being simplified, underperforming state-owned assets are being privatised, and the logistics sector is expected to be modernized and integrated

Other agencies ratings

  • Prior to the World Bank’s action, global rating agencies too had slashed India’s economic growth forecast. Last month, Moody’s Investors Service trimmed the GDP projection to 8.8% for the calendar year 2022 from 9.1% earlier, citing high inflation.
  • S&P Global Ratings too had cut India’s growth projection for 2022-23 to 7.3%, from 7.8% earlier, on rising inflation and longer-than-expected Russia-Ukraine conflict.
  • In March, Fitch had cut India’s growth forecast to 7.8%, from 8.5%, while IMF has lowered the projection to 8.2% from 9%
  • Asian Development Bank (ADB) has pegged India’s growth at 7.5%, while RBI in April cut the forecast to 7.2% from 7.8% amid volatile crude oil prices and supply chain disruptions due to the ongoing Russia-Ukraine war.

WHAT IS INFLATION?

  • Inflation can be defined as a persistent rise in the general price of goods and services of common or daily use — such as clothing, food, fuel, transport, etc — which results in an increase in the cost of living.
  • Inflation is the measure of change in average price of services and commodities, done at regular intervals. It indicates a decrease in the purchasing power of a unit of a nation’s currency as the products and services get more expensive.
  • A certain level of inflation is required in the economy to ensure that expenditure is promoted and money hoarding through savings is discouraged.

How is inflation measured?

  • In India, there are two main sets of inflation indices to measure changes in price levels — Consumer Price Index (CPI) and Wholesale Price Index (WPI). These indices measure changes at the retail and wholesale price levels, respectively. CPI tracks any shift in retail prices of essential and daily goods and services consumed by households across the country. In short, it captures changes in price level at the consumer level.
  • WPI, on the other hand, is the average change in the price of commodities at the wholesale level. It considers the price of goods traded among corporations, not goods purchased by consumers. The aim of WPI is to monitor price drifts that reflect demand and supply in manufacturing, industry and construction.