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Category: Global Economy Sub-category: Indian Economy
Document type: news
The World Bank has painted a dismal picture of India's growth prospects stating that the current spell of economic slowdown is going to continue in the next financial year (FY) 2012-13 as well.
The downside risks to growth are high because of the risks to global growth from the precarious situations in Europe. A worst case international scenario will lead to a collapse of demand for India's exports and strong contraction in private sector spending as well.
In India, the slowdown in GDP growth witnessed over the last two quarters is likely to extend into the coming fiscal year because of the weakness in investment," the World Bank said in its latest economic update for India.
According to the international lending agency, the country is expected to see a growth of 7-7.5% in the current as well as next financial years, a sharp slowdown "from 9-10% growth in the run-up to the global financial crisis".
The agency also pointed out that slowdown is at least partly caused by structural problems, the reform of direct taxes, the implementation of the long-delayed GST, and passage of the land acquisition and mining bills.
Moreover, tighter macroeconomic policies, slow growth in the core OECD countries and worries about another global recession, among others may also be major issues.
The World Bank also said that the central government is likely to miss the ambitious target for fiscal consolidation it had set in the FY 2011-12 budget by about 1 per cent of GDP.
These slippages are due to lower-than-expected revenues and increasing outlays on subsidies, which had been given low budgetary allocations in anticipation of strong policy changes, which failed to materialize.
As per official estimates, the Indian economy is likely to expand 6.9 per cent in the current fiscal. However, in a move meant to relieve growing stress in its financial system, India's central bank has sharply reduced the amount of money that banks have to hold in reserve. The action came ahead of a scheduled policy meeting at which the bank was expected to cut the reserve ratio, but less sharply. Analysts were expecting the central bank to cut the reserve ratio by 0.50 percentage point.
While the report said that fiscal consolidation and higher interest rates will have a dampening effect on the aggregate demand situation in the country, it made a strong case for further rationalization of public spending , lowering government borrowing and supporting private investment through lower interest rates and structural reforms. There is much less room for fiscal stimulus that there was in 2008. It can come from rationalizing government expenditure by expanding investment and cutting subsidies.
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The World Bank is an international financial institution that provides loans to developing countries for capital programs.The World Bank's official goal is the reduction of poverty. According to the World Bank's Articles of Agreement (As amended effective 16 February 1989) all of its decisions must be guided by a commitment to promote foreign investment, international trade and facilitate capital investment.
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