World Bank lowers India’s growth forecast to 6.3%, says labour market needs to be more inclusive

‘Growth is likely to be constrained by slower consumption growth and challenging external conditions’

April 04, 2023 12:52 pm | Updated April 05, 2023 08:11 am IST - London

Image for representation purpose only. File

Image for representation purpose only. File | Photo Credit: Getty Images

The World Bank has forecast a 6.3% economic growth rate for India in the current fiscal year (FY) which ends March 31 2024, a downgrade of 0.7 percentage points since its October forecast. The primary reasons for this are high borrowing costs and slower income growth causing weaker consumption, as well as the government tightening fiscal expenditure, the World Bank said in its South Asia Economic Focus: Expanding Opportunities: Toward Inclusive Growth report,released ahead of next week’s Spring Meetings in Washington DC.

While India fared better than the rest of the South Asian region, two major concerns were the female labour participation rate, which had dropped to below 20%, and the informal sector neither becoming more productive nor shrinking, according to the lead economist of the study.

Also Read | ADB forecasts China, India to power strong growth in 2023

The Indian economy is expected to grow at 6.4% in FY 2024-25 , an upgrade of 0.3 percentage points from the previous forecast. The South Asia region as whole is expected to grow at 5.6% this calendar year.

“In general, the situation in India is better than in many of the other countries in South Asia,” said World Bank Chief Economist for South Asia Hans Timmer told reporters at a virtual briefing on Tuesday. “And especially the situation in the financial sector is healthier than many of the other countries,” he said, adding that banks were “in good shape” and had improved after the pandemic.

However, the female labour participation rate and the size, and (low) productivity of the informal sector were concerns, according to Mr. Timmer.

“So there is still a huge structural agenda in India to make growth more inclusive to increase participation,” he said, adding that private investment from abroad needed to be increased, especially in the services sector.

The services sector — and then the construction sector — were the fastest going industries in India, according to the World Bank. Investment growth remained strong and business confidence was high in India, the report said.

“The government has done a lot to improve social protection, but that is by itself not enough. Ultimately, it is about increasing more opportunities in the labor market and there’s still a long way to go,” Mr. Timmer said.

Bleak situation for Sri Lanka and Pakistan

The outlook for India’s neighbours Sri Lanka and Pakistan , both of which have experienced economic difficulties, was bleaker. The World Bank forecast for Sri Lanka this calendar year was -4.3% (i.e., a contraction) and for Pakistan was 0.4% for the year ending June 30, 2023

The political uncertainty in Pakistan made making decisive reforms harder, Mr Timmer said, adding that it was important to have wide buy-in for the “ reform process”. Islamabad is negotiating the release of a $1.1 billion tranche of a larger $6.5 billion bailout package with the International Monetary Fund (IMF), which has been delayed, as the IMF awaits assurances from Pakistan that it can finance this year’s balance of payments deficit.

Sri Lanka, which faced economic collapse last year, negotiated a $ 3 billion loan from the IMF at the end of March and is hoping to secure further financing from international institutions.

“Hopefully, Sri Lanka can turn the corner now as an IMF program has been put in place which makes it easier also for the World Bank to to support Sri Lank,” he said.

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