India's growth continues to be resilient despite some signs of moderation in growth in the second half of the last fiscal, the World Bank said today. Pointing to areas of concern, it said manufacturing and construction sectors shed a lot of jobs during the Covid pandemic. However, it also said that labour market outcomes have improved post-pandemic.
"Strong domestic demand, underpinned by robust consumer spending by higher-income groups and higher public investment, was the main growth driver. However, consumer spending by low-income groups was weak due to slow income growth," it said.
Inflation is elevated, but pressures are moderating as food and fuel prices moderate, the India Development Update, the World Bank India's biannual flagship publication, said. It, however, remains above the upper threshold of the Reserve Bank of India's (RBI) target range of 2-6 percent.
Since May 2022 the RBI's Monetary Policy Committee (MPC) has hiked the repo rate (its main policy rate) by 250 basis points, it said.
The current account deficit also narrowed in the third quarter of the last fiscal as commodity prices eased, it said.
"The World Bank has revised its FY23/24 GDP forecast to 6.3 percent from 6.6 percent (December 2022). Growth is expected to be constrained by slower consumption growth and challenging external conditions. Rising borrowing costs and slower income growth will weigh on private consumption growth, and government consumption is projected to grow at a slower pace due to the withdrawal of pandemic-related fiscal support measures," it said.
It also pointed to some downside risks to India's growth in the current fiscal. Recent financial sector turmoil in the US and Europe could reduce appetite for emerging market assets, trigger another bout of capital flight and put pressure on the Indian rupee, it said, adding that tighter global financial conditions could also weigh on the risk appetite for
private investment in India.
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