The report sees average retail inflation at 7.1% this year. World Bank’s India Development Update said India is affected by spillovers from the US, Euro area and China.
It however saw the government meeting the fiscal deficit target of 6.4 per cent of the GDP in 2022-23.
World Bank expects India’s GDP growth to slow down to 6.9% in the ongoing fiscal as compared to 8.7% in FY 21-22. The report cited tightening monetary policy and high commodity prices as factors impacting the country’s growth.
Consumer price index (CPI) based retail inflation, which the RBI mainly factors in while arriving at its monetary policy, is showing signs of moderation but still remains above the central bank’s upper tolerance level of 6 per cent since January this year.
The inflation dropped to 6.77 per cent in October from 7.41 per cent in the preceding month, mainly due to easing prices in the food basket, though it remained above Reserve Bank’s comfort level for the 10th month in a row.
The GDP growth in the second quarter of the fiscal slowed to 6.3 per cent as against a growth of 13.5 per cent in the preceding three months.
India, like its global peers, has been plagued by a rise in commodity prices and tightening monetary policy by central banks worldwide.
However, the World Bank is confident that the global slowdown has a much lower impact on India, compared to other emerging economies.
“We have no concerns about India’s debt sustainability at this stage,” World Bank economist Dhruv Sharma said, adding that public debt had declined.
The RBI’s three-day monetary policy committee meeting commenced on Monday. “The RBI will be presenting the monetary policy against the backdrop of GDP growth slowing down as well as inflation being high above 6 per cent. We do believe that the MPC will continue with rate hikes this time though the magnitude will be lower – probably 25-35 bps,” said Madan Sabnavis, Chief Economist at Bank of Baroda.
Shaktikanta Das has ruled out a recession for India, while key government officials including the finance minister have said India remains a bright spot amid the global headwinds.
However, from foreign brokerages to rating agencies, most of them have in recent days slashed India’s economic growth forecasts. The expected slowdowns in Europe and North America, along with China’s sluggish economy are likely to hurt growth, while Russia’s attack on Ukraine lingers.
Geopolitical uncertainty, synchronized monetary tightening and high energy prices are clearly weighing on global growth in the first quarter of 2023, SBI said. India’s gross domestic product (GDP) growth for the July-September quarter slowed to 6.3% from 8.4% a year earlier, and 13.5% in the previous quarter, owing to slower growth of the manufacturing and mining sectors.
Nomura economists Sonal Varma and Aurodeep Nandi said in a report that they believe India’s growth rate cycle has peaked and a broad-based slowdown is underway.