World Bank scales down India's FY15 growth estimate to 5.5%

In its flagship publication Global Economic Prospects, the World Bank has scaled down its estimate for India's economic growth this financial year to 5.5%, as compared to 6.2% in its January Report and highlighted the key risk to near-term forecast was weak monsoon because of El Nino.

For 2015-16 and 2016-17, the World Bank forecasted India's economic growth to be at 6.3% and 6.6%, respectively, as it urged developing countries to double down on domestic reforms. The World Bank, however, cautioned that forecast have assumed that reforms were undertaken to ease supply-side constraints, particularly in energy and infrastructure and to improve labour productivity, while continuing with fiscal consolidation, and maintaining credible monetary policy stance.

It also pointed that subdued manufacturing activity and a sharp slowing of investment growth in India dragged GDP growth in South Asia as a whole to an estimated 4.7% in market price terms in calendar year 2013 and underscored that economic growth in ongoing fiscal year would be better provided these issues, subdued manufacturing activity and tepid pace of investment growth, were addressed.

The report highlighted that a large number of projects, particularly in the infrastructure, steel and energy sectors, being stalled in recent years in India, contributing to a rise in stressed loans of banks. However, it added that with these stalled investment projects coming on stream during the forecast period (2014-16), overall investment activity would pick up.

The forecast in coming two years were also marked down by nearly half a percentage point for FY15 at to 6.3% compared to 6.6% estimated initially and at 6.6% for FY16 from 7.1% earlier, reflecting the effects of slowing investment in recent years on potential growth, structural capacity constraints and sustained inflationary pressures.