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The World Bank has pegged India’s economic growth at 4.8 per cent in the current financial year, a tad lower than Prime Minister Manmohan Singh’s projection of five per cent. The projected estimate was, however, a bit higher than the 4.7 per cent the multilateral agency had forecast in its October outlook.
In its Global Economic Prospects released on Tuesday, the World Bank said weak growth in India has taken a toll on corporate and banks’ balance sheets.
It said gross non-performing and restructured loans rose to 10.2 per cent in September 2013, with India’s central bank warning of stress on asset quality in the iron & steel and infrastructure sectors.
Further, strains from a sharp withdrawal of foreign capital could increase the risk of corporate debt distress, while one-off costs of bank recapitalisation could put pressure on fiscal positions, it said.
India, with large current account and fiscal deficits and weaker growth, was hit particularly hard by a withdrawal of portfolio capital (resulting in steep currency depreciation) in the middle of the year, stemming from apprehensions of tapering of US quantitative easing, the bank said. India’s current account deficit (CAD) rose to a record 4.8 per cent of gross domestic product (GDP) in 2012-13. In absolute terms, it amounted to around $87 billion. Earlier this year, the government had expected it to decline to around $70 billion, but now, it is confident that the deficit will fall to $50 billion.
According to the report, weaker growth in India following years of rising inflation and CAD, has opened a large negative output gap, which is projected to gradually close as the economy recovers.
The multilateral agency expected the pace of India's economic growth to pick up and stand at 6.2 per cent in 2014-15 and at 7.1 per cent in the next financial year.
However, World Bank senior vice-president and chief economist, Kaushik Basu, had a word of caution for India and other countries. “... it is important to avoid policy stasis so that the green shoots don’t turn into brown stubble,” said Basu, former chief economic advisor in the finance ministry.
India’s economy rose to a decadal low of five per cent in 2012-13. Though the World Bank’s projections for the current financial year was a shade lower than the Prime Minister’s expectation, the issue is that it is below the psychological level of five per cent. India grew below five per cent only in 2002-03.
Better Indian performance will be heavily reflected in South Asia's growth, which is expected to strengthen to 5.7 per cent in 2014 from 4.6 per cent in 2013 and 6.7 per cent in 2016, it said.
The report said growth in India will be led by a recovery in global demand and an increase in domestic investment, subject to downside risks.
According to the report, growth in remittances to South Asia is estimated to have moderated to 6.8 per cent in 2013 from 9.7 per cent in the previous year.
“Flows to India dipped in the first quarter, but with depreciation of the rupee, they rebounded to reach an estimated $71 billion in 2013,” it said.
