The World Bank on Tuesday scaled down India’s GDP growth forecast to 6.1% for the current fiscal (2013-14) from its earlier estimated 7% but underlined that growth is expected to recover gradually.
According to the World Bank’s latest India Development Update, a twice-yearly report on the Indian economy and its prospects, economic growth is likely to accelerate to over 6% during the current fiscal year, up from an estimated decade low growth of 5% in the previous fiscal year.
Growth is expected to further increase to 6.7% in the next fiscal year, it said.
The reduced forecast is largely due to estimated farm sector growth of 2% during 2013-14 against the previous estimate of 2.7%, despite normal monsoon projections.
“Despite the current downturn, long-term prospects remain bright for India,” said Martin Rama, chief economist, South Asia, World Bank.
“India possesses the fundamentals to grow at sustained high rates over the next several decades,” he added.
In recent months, both wholesale price index-based inflation and trade deficit have declined. Inflation fell below 6% and is now within the Reserve Bank of India’s (RBI’s) comfort range.
With the stabilisation of the rupee and expectations of a good monsoon, inflation is expected to decline further, the update said.
The current account deficit, which reached a record high of 6.7% during October-December 2012, is also expected to narrow in the medium term.
The fiscal deficit, too, is likely to decline as the government has renewed its commitment to fiscal consolidation. A stronger fiscal stance and further improvements in economic activity could provide room for additional rate cuts, the update said.