Reuters | | Posted by Nisha Anand
The World Bank on Tuesday lowered its forecast for India’s economic growth in the current fiscal year that started on April 1 to 6.3% from 6.6% as it expects higher borrowing costs to hurt consumption.
To tame inflation, India’s central bank has raised interest rates by 250 basis points since May.
“Rising borrowing costs and slower income growth will weigh on private consumption growth,” the World Bank said in a report.
“Government consumption is projected to grow at a slower pace due to the withdrawal of pandemic-related fiscal support measures.”
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The World Bank estimated last fiscal year’s growth at 6.9%.
It projected the current account deficit to narrow to 2.1% of gross domestic product for the current fiscal year from an estimated 3% in the previous year, on the back of robust service exports and a narrowing merchandise trade deficit.
Spillover from recent turmoil in financial markets in the United States and Europe pose a risk to short-term investment flows to emerging markets, including India, said World Bank economist Dhruv Sharma.
“But Indian banks remain well capitalised,” Sharma said.