World Bank cuts growth projection

■ Says cyclical slowdown is severe due to consumption dip Slowdown deepens

Washington: After a broadbased deceleration in the initial quarters of this fiscal year, India’s growth rate is projected to fall to 6 per cent, the World Bank said on Sunday. In 2018-19, the growth rate of the country stood at 6.9 per cent.

After global rating agency Moody’s Investors Service, the World Bank on Sunday cut India’s economic growth rate to 6 per cent on account of sharp decline in private consumption on the demand side and the weakening of growth in industry and services on the supply side.

The report, which has been released ahead of the annual meeting of the World Bank with the International Monetary Fund, noted that India’s economic growth decelerated for the second consecutive year. In 2018-19, it stood at 6.8 per cent, down from 7.2 per cent in the 2017-18 financial year.

However, the 6 per cent growth projected for FY20 is higher than the Moody’s projection 5.8 per cent.

Interestingly, the bank had in its previous forecast in April said that India’s economic outlook was strong and projected a growth of 7.5 per cent for the current fiscal year.

“India’s cyclical slowdown is severe,” the bank said. The weakness is mostly due to a deceleration in local demand, according to the bank. “In such a weak economic environment, structural issues surface and the weak financial sector is of

becoming a drag growth,” it said.

India is currently growing at its slowest pace in six years, expanding at just 5 per cent in the April-June quarter.

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“In the first quarter of 2019-20, the economy experienced a significant and broad-based growth deceleration with a sharp decline in private consumption on the demand side and the weakening of growth in both industry and services on the supply side”, the report said, adding that a long period of weak growth would hamper the government’s fiscal consolidation plans.

Moreover, the bank in its latest edition of the South Asia Economic Focus said the country was expected to gradually recover to 6.9 per cent in 2021 and 7.2 per cent in 2022 as it assumed that the monetary stance would remain accommodative given benign price dynamics.

It said persistently low food prices remained well below the RBI’s mid-range target of 4 per cent in the first half of 2019-20. “This allowed the RBI to ease monetary policy via a cumulative 135 basis point cut in the repo rate since January 2019 and shift the policy stance from neutral to accommodative,” it said.

The World Bank report also noted that the current account deficit had widened to 2.1 per cent of the GDP in 2018-19 from 1.8 per cent a year before, mostly reflecting a deteriorating trade balance. On the financing side, significant capital outflows in the first half of the current year were followed by a sharp reversal from October 2018 onwards and a build-up of international reserves to $411.9 billion at the end of the fiscal year.