World Bank Downgrades India's Economic Growth As It Flags Risks To Short-Term Investment Flows

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The World Bank downgraded India’s economic growth rate for the current fiscal year, which ends on March 31, 2024, by 0.3 percentage points from its December forecast, to 6.3%.

What Happened? The revision was due to high borrowing costs, slower income growth, weaker consumption, and tighter fiscal expenditure by the government.

However, the World Bank’s ‘South Asia Economic Focus: Expanding Opportunities: Toward Inclusive Growth’ report stated that the growth rate would remain resilient to external shocks.

The lead economist of the study noted concerns over the female labour participation rate dropping to below 20% and a dip in productivity of the informal sector concerned.

The report also stated that private consumption growth would be weighed down by rising borrowing costs and slower income growth, and government consumption was projected to grow at a slower pace due to the withdrawal of pandemic-related fiscal support measures.

See also: India’s Job Market Paints Grim Outlook As Unemployment Hits 7.8% In March

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Why it Matters? The Reserve Bank of India’s FY24 prediction of 6.4% economic growth is close to the World Bank’s forecast. The second advance estimate from the Ministry of Statistics and Programme Implementation released on February 28 expected India to have grown 7% in FY23.

Senior Economist at the World Bank, Dhruv Sharma, highlighted that there is a risk to short-term investment flows to emerging markets, including India, due to spillovers from recent developments in financial markets in the US and Europe. Despite this, Sharma emphasised that Indian banks are well-capitalised.

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Posted In: Macro Economic EventsEconomicsIndian EconomyWorld Bank