After growing at 5% in FY20, the slowest pace in a decade, India’s gross domestic product (GDP) growth will start increasing from the next fiscal year, the World Bank said in its Global Economic Prospects released on Wednesday, downgrading its previous estimate for the fiscal year from 5.4%.
However, the recovery is likely to be slow and GDP growth will be just above 6% until FY23, it added. This means that annual economic growth for the next three years will be less than what it has been between FY14 and FY19.
The latest projections involve a significant downgrade from the June 2019 forecasts, which expected the Indian economy to grow at 7.5% or more in the next three years. The latest World Bank projections are also significantly less than the October 2019 projections by the International Monetary Fund’s (IMF) World Economic Outlook (WEO). The bank has also brought down its projections for world GDP growth, which has been brought down by 20 basis points for the period between FY19 to FY22.This means that domestic headwinds to the Indian economy are much bigger than external factors.
The World Bank projections, if they turn out to be true, also mean that the government’s own assumptions about future growth in India may be exaggerated. The report of the task force on National Infrastructure Pipeline (NIP), which was released earlier this month, projects nominal GDP growth to cross 10% in FY21 and 12% from FY22 onwards. With real growth expected to stay around the 6% mark, as per the World Bank’s projections, inflation would have to reach very high levels for these nominal growth rates to be realised. India also follows an inflation targeting framework in its monetary policy, which mandates the RBI to increase policy rates in the wake of rising inflation, which also generates headwinds for economic growth. The government assumed an 8% real growth rate for the economy while setting a target of making India a $5 trillion economy by 2024.
It remains to be seen whether the IMF, in its WEO forecasts, which will be released in April, also follows the World Bank in downgrading India’s growth prospects.
“Even these estimates are optimistic projections and they do not capture ground reality. This is evident from the fact private estimates are already projecting a less than 5% growth in this year too”, said Himanshu, an associate professor of economics at Jawaharlal Nehru University.
Soumya Kanti Ghosh, chief economic adviser to the State Bank of India, had projected the FY20 growth rate to be 4.6%, 40 basis points lower than the CSO’s first estimates of 5% released on Tuesday.
