Activity is expected to pick up in the last six months of the fiscal

The World Bank has lowered its forecast for India’s economic growth in the current fiscal year to 4.7 per cent from 6.1 per cent it had projected in April. Following this, the World Bank has joined various agencies to peg India’s gross domestic product (GDP) expansion at sub-5 per cent.

Last week, the International Monetary Fund (IMF), in its World Economic Outlook, slashed India’s growth forecast to 4.25 per cent for the current fiscal.

India’s growth will continue to remain subdued in the July-September quarter owing to negative business sentiment and higher interest rates before bouncing back in the second-half of the fiscal, the World Bank said in its biannual update.

“India’s growth potential remains high but its macro-economic vulnerabilities — high headline inflation, an elevated current account deficit, and rising pressure on fiscal balances from the depreciation of the rupee — could impact the speed of economic recovery,” said Denis Medvedev, senior country economist, World Bank, India.

India’s GDP growth slowed to 5 per cent in the year ended March from an average of 8 per cent over the past decade. According to the World Bank, activity is expected to pick up strongly in the last six months of the fiscal year. This will take place as financial markets stabilise, exporters take advantage of improvements in external competitiveness following the depreciation in the rupee, the manufacturing sector’s recovery continues, and delayed investment projects begin to come on stream. “While the reform momentum has accelerated in the last few months, the current situation offers an opportunity to further strengthen the business environment, and enhance fiscal space.” said Martin Rama, World Bank’s chief economist, South Asia.

While market sentiment had improved in the past few weeks, challenges remained, highlighting the importance of prudent macro-economic policies and continued reforms to set strong foundations for accelerated growth, he added.

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