World Bank slashes India's growth forecast to 8.3%

The World Bank on Tuesday slashed its FY22 growth forecast for India to 8.3% from the 10.1% pace it estimated in April, as an economic rebound in the early part of this year collapsed amid a devastating resurgence of coronavirus infections in Asia's third-largest economy.

"In India, the second Covid-19 wave is undermining the sharper-than-expected rebound in activity seen during the second half of FY2020/21, especially in services. With surging cases, foot traffic around work and retail spaces has again slowed to more than one-third below pre-pandemic levels since March, in part due to greater restrictions on mobility," World Bank said in its latest Global Economic Prospects report.

Economic activity in FY22 will benefit from policy support, including higher spending on infrastructure, rural development, and health, and a stronger-than-expected recovery in services and manufacturing, the World Bank said. "Activity is expected to follow the same, yet less pronounced. The pandemic will undermine consumption and investment as confidence remains depressed and balance sheets damaged. Growth in FY2022/23 is expected to slow to 7.5% reflecting lingering impacts on households, corporate and bank balance sheets; possibly low levels of consumer confidence; and heightened uncertainty on job and income prospects," it added.

In India, the FY22 budget marked a significant policy shift, the World Bank said. "The government announced health-related spending would more than double and set out a revised medium-term fiscal path intended to address the economic legacy of the pandemic. Following deteriorating pandemic-related developments, the Reserve Bank of India announced further measures to support liquidity provision to micro, small, and medium firms and loosened regulatory requirements on the provisioning for non-performing loans. The renewed outbreak, however, may require further targeted policy support," it added.

The Bank said domestic financial conditions are easier than they have been in decades in India. "These may change, however, if rapid recoveries in advanced economies lead to tightening monetary policy before recoveries are entrenched in Emerging Market and Developing Economies, including those in South Asia Region. An unexpected rise in global inflation from unprecedented advanced policy support may also reverse easy financing conditions," it cautioned.