World Economic outlook - World Bank reduced india growth projection released 10 October 2012 : The World Bank reduced India’s growth projection to 6% in its latest economic outlook update released 10 October, the latest such cut in the country’s growth forecast. It had projected a 6.9% growth in its global economic prospects report released in June.
“We have seen a lot of negative news on GDP (gross domestic product) in the last quarter of the previous year, the first quarter of the current year, exports slowing, IIP (index of industrial production) coming very low. That’s why we and most other observers have reduced forecasts,” said Ulrich Bartsch, author of the World Bank’s latest report.
While the update acknowledged policy changes made by the government in September as having led to a positive investor reaction, it said the risks to growth from the high fiscal deficit remain.
“The budget deficit is likely to exceed the target by a significant margin, despite the September changes in diesel and LPG subsidies. The slippage could reach about 0.7% of GDP,” the report said.
The weaker forecast, the report said, was an outcome of structural problems such as power shortages, caused partly by the poor financial condition of electricity distribution companies, the alleged mining and telecom sector scams, constraints on infrastructure growth and investor uncertainty because of delayed legislative decisions related to taxes, mining and land acquisition.
“The late monsoon which puts agriculture growth (expectations) lower than thought in May” is also among the reasons for the forecast being lowered since the June report, Bartsch added on a Facebook chat set up by World Bank to discuss the economic update.
Citing medium-term risks from the possible worsening of the situation for European economies leading to a shrinkage of Indian exports and effects on growth from the management of inflation, which is projected to reach 8% by the end of the fiscal year, the update said, “This growth projection is predicated on an improving domestic and external environment, but the risks for a worse outcome are high.”
While the report pointed to these risks, Bartsch said, “Continuing economic reforms will allow productivity improvements and higher investment flows, which ultimately lead to higher growth.”
Moreover, the update projects faster manufacturing sector growth compared with the previous fiscal. “India’s manufacturing sector especially has a bright future because China is concentrating more on the domestic market now, and some production is moving to India,” Bartch said.
This latest reduction in the growth forecast is in line with the International Monetary Fund lowering the calendar year growth projection from 6.2% to 4.9% Tuesday. An IMF India representative said that was comparable with a projection of 5.6% for the fiscal. Similar action by various other economy watchers has seen projections being reduced from a range of 6%-7.3% to 5.4%-6.5%.
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