World Bank sees protracted recovery for India, limited fiscal fillip scope

India may just see a marginal recovery in economic growth, that will go up to 6.1 per cent in 2022-23 (FY23), from the decade-low expansion projected at 5 per cent for the current fiscal year, said the World Bank.

Ahead of the Budget, the multi-lateral agency said that the scope of fiscal stimulus was limited, as weaker-than-expected tax revenues were being accompanied by higher public spending, even as the industry is demanding such a stimulus. 

In its flagship report titled Global Economic Prospects, it said there was not much scope for further monetary easing, given that inflation has crossed the mid-way mark of the target range. 

The consumer price index-based inflation rate rose to a 40-month high of 5.54 per cent in November, from 4.62 per cent in the previous month. The Reserve Bank of India has been mandated to keep the inflation rate at 2-6 per cent. 

In line with official Advance Estimates, the World Bank pegged economic growth at 5 per cent for the current fiscal year, down 2.5 percentage point from its earlier estimates on account of the liquidity crisis in non-banking financial companies. It projected India’s economy  to grow at 5.8 per cent during 2020-21 (FY21), and 6.1 per cent each over the next two fiscal years. The new figures reflect the downward revision by 1.7 percentage point for the next fiscal year, and 1.4 percentage point in 2021-22 (FY22). Growth for FY23 was not given earlier. 

These projections are based on the assumption that the monetary policy stance remains ‘accommodative’ and measures such as corporation tax rate cuts, income transfer to farmers, rural development spend, support measures for the automobile industry, and further liberalisation of foreign direct investment will begin to pay off. 

If predictions come true, India will lose the tag of the fastest-growing large economy to China in the current and the next fiscal year. However, it will again surpass China’s economic growth in FY22 and FY23.

The interesting thing to watch out for is the economic growth in Bangladesh. In these four years, economic growth in Bangladesh may beat India hollow. The neighbouring country is projected to grow at 8.1 per cent in the current fiscal year and 7.2 per cent in FY21. It is again projected to grow at 7.3 per cent each in the next two fiscal years. 

The report stated that a re-escalation in tensions between India and Pakistan, which had abated of late, will damage confidence and weigh on investment in South Asia.
 

Amid the Washington-Tehran tension, the GDP of Iran is projected to contract 8.7 per cent in 2019, against a 4.9 per cent fall in the previous year. The beleaguered economy is projected to see flat GDP in 2020 and 1 per cent growth each in the next two years. 

The US’ economic growth is projected to grow at 2.3 per cent in 2019, 1.8 per cent in the current calendar year, and 1.7 per cent each in the next two years. The World Bank expects global growth to recover at 2.5 per cent in 2020 — up slightly from the post-crisis low of 2.4 per cent last year amid weakening trade and investment — and edge up further over the forecast horizon. 

This projected recovery could be stronger if recent policy actions — particularly those that have mitigated trade tensions — lead to a sustained reduction in policy uncertainty, said the report.