India’s growth forecast for the current fiscal year (2022-23) was lowered to 8 percent from the estimated 8.7 percent predicted in January by the World Bank, on April 13. The bank cited the impact of the Russia-Ukraine war, high global oil prices, elevated inflation and supply disruptions as reasons for the recent revision in estimation. “In India, household consumption will be constrained by the incomplete recovery of the labour market and inflationary pressures,” said the World Bank in its biannual report for the South Asian region.
The region (excluding Afghanistan) has witnessed a reduction in growth forecast by one percent, and currently stands at 6.6 percent. “High oil and food prices caused by the war in Ukraine will have a strong negative impact on peoples’ real incomes,” said Hartwig Schafer, World Bank Vice President for South Asia, in a statement. South Asia’s second-largest economy, i.e. Pakistan witnessed a growth increase from 3.4 percent to 4.3 percent. Next year’s growth outlook remains unchanged at 4 percent.
Schafer further warned governments in the South Asian region to carefully plan monetary and fiscal policies that will be able to counter external shocks and protect particularly vulnerable sections of society. “South Asia has faced multiple shocks in the past two years, including the scarring effects of the COVID-19 pandemic,” he said.
Despite the need for caution and the threat of inflation, the World Bank vice president highlighted how the Ukraine war provides an opportunity for the region to reduce its dependence on fuel imports, and focus on moving towards green energy. “The introduction of green taxation can have multiple quantifiable benefits for South Asia, including improved energy security, environmental gains and increased fiscal revenues,” said the World Bank chief economist for South Asia, Hans Timmer. “These revenues could be utilised for adaptation against climate-related disasters and to strengthen social safety net systems,” he said.
Asian Development Bank’s Outlook 2022 has earlier said that India is likely to maintain its position as the fastest-growing major economy with a growth rate of 7.5 percent in 2022-23, and that it shows promising investment prospects compared to China’s 5 percent in January-December 2022. Further, the financial body said that India’s growth in 2023-24 will rise to 8 percent. In contrast, it expects China to witness a deceleration in growth rate, dropping to 4.8 percent due to its dependence on energy imports. Given high crude prices, economies have been pushed to focus their policies on inflation instead of working on reviving economic growth after two years of pandemic restrictions. Other rating agencies like the United States-based credit rating agency Fitch had also cut India’s growth forecast for the current fiscal year to 8.5 percent from 10.3 percent, in late March. India’s own ratings show a lowered growth projection for 2022-23, dropping to the range of 7 to 7.2 percent from its previous estimate of 7.6 percent.