World Bank cut India’s economic growth rate to 6.5%; remains optimistic about 2013-14

19 Jan 2012 Evaluate

The World Bank expects the Indian economy to grow 6.5% in 2012, much lesser than its earlier estimate of 8.4% in June and even lower than the government’s estimates of 7-7.5% for the current fiscal, mainly on the back of weakening global economic situation. It has further predicted GDP growth to remain flat at 6.8% in 2012 but is optimistic that it may bounce back to 8% in 2013-2014.

The bank in its report, ‘Global Economic Prospects 2012’, blamed India’s rising prices combined with deceleration in investment growth, high input prices and slowing global growth for this downturn. The report further said delays and uncertainty surrounding the implementation of policy reforms have hindered investments. It noted that the hurdles in second generation economic reforms such as foreign direct investment in multi-brand retail, goods and services tax (GST)and pension reforms have further affected growth.

As per the report, global economy is expected to expand at 2.5% and 3.1% in 2012 and 2013 as against the 3.6% projected earlier for both years, it also warned for another global recession. Developed and developing countries’ growth rates could also fall by as much or more than in 2008-09. ‘Developing countries should hope for the best and plan for the worst,’ the report warned.

The report stated that the overall GDP growth in the South Asian region is likely to slip to 5.8 percent in 2012, from an estimated 6.6 percent in 2011, before bouncing back to 7.1 percent in 2013. The slowdown in South Asia will be dominated by a slowdown in the Indian economy as it accounts for about 80% of South Asia’s GDP. Demand for the region’s exports is expected to go down to 11.6% in 2012 from 21% in 2011, due to stagnant GDP in the European Union and the projected global slowdown. It warned that the developing countries would have much less fiscal space than in 2008 with which to react to a global slowdown as 38% of developing countries are estimated to have a government deficit of 4% or more of GDP in 2011.

On the sidelines, accepting the global uncertainty, Finance Minister Pranab Mukherjee said, India's economic growth will fall below 7.5% in the current financial year and admitted that the fiscal deficit target of 4.6% of GDP would not be achieved. ‘We have a difficult last quarter ahead of us in this fiscal year. Our growth for 2011-12 may be around 7.5% or less,’ Mukherjee said.

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World Bank cut India’s economic growth rate to 6.5%; remains optimistic about 2013-14

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