“Rising borrowing costs and slower income growth will weigh on private consumption growth, and government consumption is projected to grow at a slower pace due to the withdrawal of pandemic-related fiscal support measures,” the organisation said in its report.
It projects private consumption growth to decline to 6.9% in the current fiscal, compared to 8.7% in the previous year. The government consumption is expected to contract by 1.1%.
“Spillovers from recent developments in financial markets in the US and Europe pose a risk to short-term investment flows to emerging markets, including India,” said Dhruv Sharma, Senior Economist, World Bank, underscoring that the Indian banks were well capitalised.
The good and the bad:
– Growth to moderate further in the coming year
– Inflation outlook improves
– Current account deficit to narrow further
– Indian economy still resilient
The bank also revised its inflation forecast downwards and now projects headline inflation to decline to 5.2% in the current fiscal. Easing commodity prices and moderation of domestic demand will help keep the inflation under the Reserve Bank of India’s target band of 2-6%, according to the international organisation.
“The Reserve Bank of India has withdrawn accommodative measures to rein in inflation by hiking the policy interest rate,” the release noted.
Economists are pencilling in another 0.25 percentage point rate hike on April 6. The central bank has raised rates by a similar quantum in its February meeting to 6.5%.
The World Bank also revised its current account deficit forecast for 2023-24 downwards to 2.1% from 2.5% projected earlier.
“Notwithstanding external pressures, India’s service exports have continued to increase, and the current-account deficit is narrowing,” said Auguste Tano Kouame, World Bank’s Country Director in India.
India’s current account deficit narrowed sharply in the third quarter of 2022-23, data released by the government last week showed. The World Bank expects the current account deficit at 3% of GDP in 2022-23.
An ET poll of 14 economists had pegged the current account deficit at 2% for the current fiscal.
On the fiscal front, the World Bank projects debt-to-GDP ratio to stabilise on account of fiscal prudence on part of central and state governments. It projects debt-to-GDP ratio to slightly increase to 83.4% in 2023-24, from 83% in 2022-23.
“The central government is likely to meet its fiscal deficit target of 5.9 percent of GDP in 2023-24 and combined with consolidation in state government deficits, the general government deficit is also projected to decline,” it said.