World Bank cut India's growth forecast on account of a globally weaker outlook.
The international financial institution has cut India's GDP growth forecast to 6.5% for FY23 from 7.5% projected in June, according to its South Asia economic focus report for October 2022. GDP is forecasted to grow 7% in FY24 against 7.1% estimated in June.
Despite the mounting challenges, there are also optimistic signs, as some sectors and some countries are recovering strongly, said the report published on Thursday. "In India, services exports have recovered more strongly than in the rest of the world, and India's ample foreign reserve buffers have afforded resilience to the country's external sector."
The manufacturing sector in India has been affected by sluggish domestic demand for goods, the global Omicron wave, and higher input costs, which have squeezed the price margins of the manufacturers, the World bank said.
Still, both manufacturing and services activities have been expanding in India since at least January, and at faster speeds than the rest of the world, the report said. The continued improvement in economic activities is in part thanks to relaxed Covid measures and a pick-up in domestic demand including for contact-intensive services as Covid risk subsides, it stated.
Business confidence, which captures a country's overall economic conditions as perceived by businesses, has stayed positive in India, reflecting overall optimism despite rising inflation.
India's economy-wide employment index is improving month-over-month but at slower speeds than the rest of the world outside of Asia, and demand for the rural work programme remains elevated, the World bank said. As a result, while India's private consumption in the aggregate expanded in Q2 2022, recovery remained uneven. While high-income households' consumption of contact-intensive services and consumer durables recovered, rural and low-income households' consumption remained weak, it said.
The return of migrant workers from the region has been slow, possibly due to the scarring effects of the pandemic lockdowns, which reduce migrant-sending households' incomes, it added.
In India, the recent depreciation of the rupee against the U.S. dollar contributed to higher inflation, as do higher oil prices, the World Bank said.
"Weaknesses in supply chains and employment remain as COVID scars prove long-lasting, even in India where recovery leads the region," the report cautioned.
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