Economy

Published: Jan 15, 2022
Updated: Jan 15, 2022

India to grow at 8.3% - WB

India’s economic growth is expected to be 8.3 per cent in the current financial year and 8.7 per cent in 2022-23, according to World Bank’s “Global Economic Prospects” report, which released today. The 8.3 percent GDP growth prediction for the current fiscal (2021-22) is the same as what was projected by the World Bank in its last projection released in October 2021.

The report said that Indian economy’s growth rate in the current as well as the next fiscal will be stronger compared to its immediate geographic neighbours. Bangladesh is expected to grow at 6.4 and 6.9 percent in 2021-22 and 2022-23, respectively, while Nepal’s growth is expected to be at 3.9 percent this fiscal and at 4.7 percent in the next financial year. Pakistan’s economy will grow by 3.4 percent in the current fiscal and at 4 per cent in 2022-23, the report said.

Global economic growth though, the World Bank report said, will “decelerate markedly” this year as Coronavirus outbreaks and supply chain snarls persist. At the same time, the support programmes unveiled by several governments are about to end, it added.

It predicted further that global growth will slow down to 4.1 percent this year from an estimated 5.5 percent in 2021, but warned “Omicron-related economic disruptions could substantially reduce growth” to as low as 3.4 percent.

For India, however, the successive World Bank projections have signalled a post-pandemic recovery. On March 31, the bank said India’s real GDP growth for fiscal year 21-22 could range from 7.5 to 12.5 per cent.

In April-May, India struggled with the second wave of the deadly coronavirus pandemic with more than 3,00,000 daily new cases, throwing hospitals and health system out of gear due to a shortage of medical oxygen and beds. An array of economic activities were severely hit in this period.

After considering the second COVID-19 jolt, the World Bank, in South Asia Economic Focus report released in early October, said the Indian economy is poised to grow by 8.3 percent. The economy of South Asia region was projected to grow by 7.1 percent.

Incidentally as per the first advance estimate released by the ministry of statistics and programme implementation on January 8, India’s GDP growth is likely to be 9.2 per cent in the current fiscal.

Comments: The projection is lower than the forecast by the Reserve Bank of India (RBI), which had in December said that the GDP growth rate is likely to be 9.5 percent for the current fiscal.

The Indian economy is gaining momentum, driven by the recovery in industrial output, growth in core sectors, coupled with fairly focused government initiatives and policies. While the economy is reviving on the back of ebbing effects of the second wave and rapid vaccination drive, it is also witnessing a gradual momentum in some of the highly distressed sectors.

Recent high frequency indicators are showing positive signs, raising both business and consumer optimism. Factors such as rail and freight activity, passenger traffic, power consumption, e-way bills and Goods and Services Tax (GST) collections are following a rising trend.

With a revival in demand and improvement in industrial indices, the economy is observing positive sentiment among financial institutions. Both Reserve Bank of India (RBI) and International Monetary Fund (IMF) have projected a 9.5 per cent GDP growth for the country in FY22. Foreign investors are also exuding confidence in the economy, reflected in 23 per cent growth in FDI inflows in 1Q22 vs 4Q20 (a pre-COVID-19 period).

A combination of RBI’s monetary policies and government initiatives such as Production Linked Incentive Scheme (PLI), National Monetisation Plan (NMP), PM Gati Shakti – National Master Plan, amongst others is in force to further augment growth.

In a nutshell, the Indian economy is likely to recuperate, backed by industrial resurgence, demand revival, and policy intervention. However, widening trade deficit, inflationary pressures, and scepticism around third wave of COVID-19 might impede the pace of recovery.

With this backdrop, we at KPMG in India have published the latest edition of “Indian Economy Insights”, an assessment of key trends that are central to India’s recovery in the post-lockdown scenario, long-term growth potential and changes in the current market sentiment.

- Neeraj Bansal (KPMG)