Economic Growth Forecast: Effect of rising inflation, World Bank cuts India's economic growth forecast to 7.5 percent

Posted on 8th Jun 2022 by rohit kumar

The World Bank on Tuesday slashed India's economic growth forecast for the current fiscal to 7.5 percent because of rising inflation, supply chain disruptions, and geopolitical tensions. This is the second time that the World Bank has revised its GDP growth forecast for India in the current fiscal year 2022-23 (April 2022 to March 2023). In April, it lowered the forecast from 8.7 percent to 8 percent and is now projected at 7.5 percent. In its latest issue of Global Economic Prospects, the World Bank said that India is projected to grow at 7.5 percent in FY 2022/23. The reasons for this are rising inflation, disruption in the supply chain, and a surge in consumption of services from the pandemic.

 

The effect of increasing the price of fuel for vegetables and edible oil

 

It added that growth will also be supported by certain investments made by the private sector and the government, which have introduced incentives and reforms to improve the business environment. The bank said the forecast reflects a 1.2 percentage point decline in growth from January's estimate. A rise in prices of all commodities from fuel to vegetables and cooking oil pushed wholesale price-based inflation to a record high of 15.08 percent in April and retail inflation to an almost eight-year high of 7.79 percent. High inflation forced the Reserve Bank to hold an unscheduled meeting last month to raise the benchmark interest rate by 40 basis points to 4.40 percent.

 

Other agencies also reduced India's economic development estimate

 

Before the World Bank, global rating agencies also downgraded India's economic growth forecast. Last month, Moody's Investors Service cut its GDP forecast for the calendar year 2022 to 8.8 percent from 9.1 percent, citing high inflation. S&P Global Ratings also lowered India's growth forecast for 2022-23 to 7.3 percent from 7.8 percent. In March, Fitch lowered India's growth forecast from 10.3 percent to 8.5 percent, while the IMF cut the forecast to 8.2 percent from 9 percent. The Asian Development Bank (ADB) pegged India's growth at 7.5 percent, while the RBI in April cut the forecast to 7.2 percent from 7.8 percent amid volatile crude oil prices and supply chain disruptions due to the Russia-Ukraine war.

 

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