World Bank Slashes India's Growth Forecast to 7.5 Percent; Know Why

The global body has lowered its India growth forecast for the second time since the Ukraine conflict began, having slashed it by 70 basis points in April. In FY22, the country's GDP increased by 8.7%, although on a low basis.

The World Bank forecasted India's FY24 growth at 7.1 percent in its latest Global Economic Prospects, up 30 basis points from its April projection but slower than the latest expected growth of 7.5 percent for the current fiscal year.

It has also slashed its global growth forecast for 2022 by as much as 120 basis points, to only 2.9 percent. It warned that the situation in Ukraine had contributed to the pandemic's misery and that many nations could face recession as a result.

However, the global organization said that fixed investment by both the private sector and the government will help India's progress (the latter has introduced incentives and reforms to improve the business climate).

With this, the World Bank has joined several other organizations that have lowered their growth forecasts for the country in the recent months after the rise in global commodity prices, particularly oil, as a result of the Ukraine conflict. 

Moody's has lowered its GDP forecast for the calendar year 2022 from 9.1 percent to 8.8 percent. S&P lowered its FY23 forecast from 7.8% to 7.3 percent. In April, the International Monetary Fund lowered its India projection from 9 percent to 8.2 percent.

According to the Bank, India's GDP slowed in the first half of 2022 as a jump in Covid cases, combined with more-targeted mobility constraints, and the Ukraine crisis interrupted economic activity.

While unemployment has fallen to pre-pandemic levels, labor force participation has remained below pre-Covid levels, and employees have migrated to lower-paying positions.

In India, the government's expenditure priorities have switched to infrastructure development. According to the global agency, labor regulations are being streamlined, underperforming state-owned assets are being privatized, and the logistics sector is projected to be modernized and integrated.