India to grow at 7.5% in 2022-23, says World Bank report

Washington: As the global economy enters a period of “feeble growth” and “elevated inflation”, India will grow at 7.5% in 2022-23, the World Bank has said in its latest Global Economic Prospects report, released on Tuesday. In January, the Bank had pegged India’s growth projection for the fiscal year at 8.7%. For 2023-24, the report projects that India will grow at 7.1%.

The downward revision in India’s prospects comes in the backdrop of a projected slowdown globally, with growth expected to slump from 5.7% in 2021 to 2.9% in 2022 — in January, the Bank had projected global growth this year to 4.1%. The slowdown is due to the lasting effects of the pandemic but the more immediate trigger is the Russian invasion of Ukraine.

“The war in Ukraine, lockdowns in China, supply-chain disruptions, and the risk of stagflation are hammering growth. For many countries, recession will be hard to avoid,” said World Bank Group president David Malpass.

The report draws a parallel between the current period with the stagflation in 1970s, and points out three similarities — these include “persistent supply-side disturbances fueling inflation, preceded by a protracted period of highly accommodative monetary policy in major advanced economies, prospects for weakening growth, and vulnerabilities that emerging market and developing economies face with respect to the monetary policy tightening that will be needed to rein in inflation.”

But it also points to the distinctions with the crisis of the 1970s. These include a much stronger dollar; smaller percentage increases in commodity prices; and stronger balance sheets of major financial institutions. “More importantly, unlike the 1970s, central banks in advanced economies and many developing economies now have clear mandates for price stability, and, over the past three decades, they have established a credible track record of achieving their inflation targets.”

In India’s case, the report noted that there had been a slowdown in the first half of 2022 due to a surge in Covid-19 cases, targeted mobility restrictions, and then the Russian war in Ukraine. “The recovery is facing headwinds from rising inflation. The unemployment rates have declined to levels seen prior to the pandemic, but the labour force participation rates remain below pre-pandemic levels and workers have shifted to lower-paying and less-secure jobs.”

Explaining its downward revision for India, the report pointed to “headwinds from rising inflation, supply chain disruptions, and geopolitical tensions offsetting buoyancy in the recovery of services consumption from the pandemic”. It, however, added that growth will be supported by fixed investment undertaken by the private sector and by the government, “which has introduced incentives and reforms to improve the business climate”.