India’s GDP growth is expected to accelerate moderately to 7.5 percent in Fiscal Year 19-20, driven by continued investment strengthening, particularly private-improved export performance and resilient consumption, the World Bank has said.
The real GDP growth is estimated at 7.2 percent in FY18/19, the World Bank said in its latest report on South Asia on April 7 ahead of the spring meeting of the World Bank and the International Monetary Fund.
Data for the first three quarters suggest that growth has been broad-based. Industrial growth accelerated to 7.9 percent, making up for a deceleration in services.
Meanwhile, agriculture growth was robust at four percent.
On the demand side, domestic consumption remained the primary growth driver, but gross fixed capital formation and exports both made growing contributions. Over the last quarter, growth is expected to remain balanced across sectors, the report said.
Inflation dynamics have been subdued over most of FY18/19, the report said.
The World Bank said India’s GDP growth is expected to accelerate moderately to 7.5 percent in FY19/20, driven by continued investment strengthening-particularly private- improved export performance, and resilient consumption.
With robust growth, and food prices poised to recover, inflation is expected to converge toward four percent, it said, adding that both the current account and the fiscal deficit are expected to narrow.
“On the external front, improvements in India’s export performance and low oil prices should bring about a reduction in the current account deficit to 1.9 percent of GDP,” it said.
“On the internal front, the consolidated fiscal deficit is projected to decline, albeit slowly (to 6.2 and 6.0 percent of GDP in FY19/20 and FY20/21 respectively). As the center’s deficit is budgeted to remain unchanged at 3.4 percent of GDP in FY19/20, the burden of adjustment will rest on the states,” the World Bank said.
A sustained decline in food prices since July 2018, subsequently complemented by the softening of oil prices and concomitant appreciation of the rupee, has led to a steady decline in inflation, it noted.
Observing that headline inflation stood at 2.6 percent in February 2019, and the average for FY18/19 so far at 3.5 percent, well below the RBI’s target-midpoint of four percent, the report said that as a result, the RBI reduced the policy rate by 25 basis points (to 6.25 percent) in February 2019.
However, the report said that the current account deficit widened in FY18-19.
India’s external position worsened significantly in the first half of FY18-19, as large portfolio outflows were triggered by US monetary policy and fears of contagion from stress in some emerging market economies. The nominal exchange rate depreciated, and foreign reserves declined by over eight percent over January to October 2018.
However, since then, the decline in oil prices and the United States Fed signaling a slower pace of normalisation than initially anticipated led to a partial reversal.
Portfolio outflows have reversed, and the rupee has appreciated by about four percent vis-a-vis the USD since October 2018.