World Bank says Indian economy will decelerate to 5% in 2019-20, then recover gradually
India now grows far lower than Bangladesh, the third-largest economy in the South Asian region, which grows above seven percent.
The World Bank has predicted India’s economic growth rate to decelerate to 5 per cent in the current financial year (April 2019-March 2020), and to recover to 5.8 per cent in the next financial year.
In a newly released report, the Bank cited “enduring financial sector issues” as a reason and said that it expects weakness in credit from non-bank financial companies to continue.
"Key risks to the outlook include a sharper-than-expected slowdown in major economies, a re-escalation of regional geopolitical tensions, and a setback in reforms to address impaired balance sheets in the financial and corporate sectors," the report added.
The deceleration was seen the most in manufacturing and agriculture sectors, as government-related services sub-sectors received significant support from public spending, according to the report.
Gradual recovery expected
“Although a gradual growth recovery is expected in the second half of the fiscal year, the challenges faced by the economy over the first half should contribute to a third consecutive year of slowing growth in FY2019/20,” it said in the Global Economic Prospects report.
“Thereafter, growth is expected to gradually recover, to 6.1 percent in FY2021/22.”
The Bank said it predicts the recovery based on the assumption that India’s monetary policy remains accommodative. It also expects government measures– such as corporate tax cuts, income transfers to farmers, spending on rural development, support measures to the automobile industry, and further liberalization of foreign direct investment (FDI) – to pay off.
According to the Bank, cutting interest rates and increasing government spending to boost the economy might not help much.
“The scope for more proactive support from fiscal and monetary policies is limited, as inflation has recently crossed the midpoint of the target range, and weaker-than-expected tax revenues are being accompanied by increased public spending,” the report said.
The report comes at a time the several economists, such as former Chief Economic Advisor Arvind Subramanian, have raised serious concerns over the economy.
One of the fastest growing economies a few years ago, India now grows far lower than Bangladesh, the third-largest economy in the South Asian region, which grows above seven percent.
The report said that the global economic growth slowly edging to 2.5 per cent in 2020 as investment and trade gradually recover from last year's significant weakness. But downward risks persist, it said.