The World Bank boosts India’s GDP prediction for FY23 to 6.9%

The domestically centred orientation of India’s economy, which is less sensitive to overseas commerce, also contributes significantly to its greater resilience.

The World Bank boosted its FY23 growth prediction for India by 40 basis points to 6.9%, highlighting the economy’s relative resilience to external pressures and the September quarter’s “strong” growth outturn. This is the first upward revision of India’s FY23 growth prediction by any multilateral organisation this year, following a series of downward revisions in recent months due to global instability.

In October, the Bank reduced its growth prediction for India to 6.5% from 7.5%. It also raised the country’s FY24 estimate by 10 basis points to 6.6%.

The International Monetary Fund forecasts 6.8% growth in India in FY23, with most independent organisations predicting 6.6% to 7%. Last week, Chief Economic Advisor V Anantha Nageswaran predicted that growth in the current fiscal year might reach 6.8-7%. Meanwhile, global rating agency Fitch on Tuesday maintained the country’s growth forecast for FY23 at 7%.

It has, however, reduced its FY24 prediction for India by 50 basis points to 6.2%.

Both the Bank and Fitch have mentioned the September quarter’s better-than-expected growth rate of 6.3% as one of the primary reasons for their new positive estimates for India’s FY23 growth.

The World Bank indicated in its India Development Update that the Centre is on track to reach its fiscal deficit target of 6.4% of GDP for FY23, due to strong tax collections. According to the report, the public debt will likely fall to 84.3% of GDP in FY23, down from 87.6% in the pandemic year (FY21).

“India’s economy has been impressively robust to the deteriorating external environment, and solid macroeconomic fundamentals have placed it in excellent footing compared to other emerging market countries,” said Auguste Kouame, World Bank’s country director in India.

The domestically centred orientation of India’s economy, which is less sensitive to overseas commerce, also contributes significantly to its greater resilience.

“Policy changes and sensible regulatory measures have also played an important role in improving economic resilience,” according to the World Bank research.

Nonetheless, vigilance is advised. “A tough external environment will have a variety of effects on India’s economic prospects… Rapid monetary policy tightening in advanced nations has already resulted in huge portfolio outflows and currency devaluation, while rising global commodity prices have caused the current account deficit to deepen,” it added.

According to the research, India is still being impacted by spillovers from the United States, the European Union, and China. It discovered that a one-point reduction in US growth is connected with a 0.4-point decline in Indian growth; of course, the effect is around 1.5 times bigger for other emerging countries. The investigation of spillovers from the EU and China shows comparable results, according to the report.

“As advanced economies (AEs) slow, India may become a more appealing alternative investment destination.” “The government is also likely to offer new production-linked investment incentives and fiscal measures to stimulate foreign investment in a variety of sectors of the economy,” according to the Bank.

With the RBI boosting policy rates, the expanding interest-rate divergence with the US Federal Reserve may assist restrict capital outflows from India, according to the report.

On the external front, it stated that India’s exports have a high income elasticity, making them vulnerable to a downturn in global growth.

India is also a net importer of crude oil, and rising global commodity prices will continue to impact on local inflation, stifling domestic activity, according to the report.

However, recent commodity price declines may have dampened inflationary pressures.

Fitch anticipates retail inflation in India to grow to 6.5% in the current fiscal year, up from 5.7% in FY22, before falling to 5% in FY24. It also anticipates the RBI raising the repo rate by another 25 basis points this fiscal year to 6.15% and maintaining the same in FY24.