Washington: India's growth rate is projected to decelerate to five% in 2019-20 amid enduring financial sector issues, according to a World Bank report, which said the country's GDP was likely to recover to 5.8% in the following financial year.
India's GDP growth is seen dipping to an 11-year low of 5% in the current fiscal, mainly due to poor showing by manufacturing and construction sectors, government data showed on Tuesday.
"In India, where weakness in credit from non-bank financial companies is expected to linger, growth is projected to slow to five% in fiscal year 2019/20, which ends March 31 and recover to 5.8% the following fiscal year," the Bank said in its latest edition of the Global Economic Prospects on Wednesday.
It said tighter credit conditions in the non-banking sector are contributing to a substantial weakening of the domestic demand in India.
"In India, activity was constrained by insufficient credit availability, as well as by subdued private consumption," the report stated. The Bank said the regional growth in South Asia is expected to pick up gradually, to six% in 2022, on the assumption of a modest rebound in domestic demand.
"Growth in India is projected to decelerate to five% in FY(financial year) 2019/20 amid enduring financial sector issues," the WB report said.
It said key risks to the outlook include a sharper-than-expected slowdown in major economies, a re-escalation of regional geopolitical tensions, and a setback in reforms to address impaired balance sheets in the financial and corporate sectors.
In India, economic activity slowed substantially in 2019, with the deceleration most pronounced in the manufacturing and agriculture sectors, whereas government-related services sub-sectors received significant support from public spending, the Bank said.
GDP growth decelerated to five% and 4.5% in the April-June and July-September quarters of 2019, respectively, the lowest readings since 2013, it said.
Sharp slowdowns in household consumption and investment onset, the rise in government spending. High-frequency data suggest that activity continued to be weak for the rest of 2019, the Bank said. The Bank, in the report, praised India's efforts to gradually eliminate subsidies on LPG. In India, starting in 2012, the government reformed its subsidy regime for liquified petroleum gas (LPG). LPG subsidies to households encouraged the formation of black markets where subsidised LPG distributed to households was diverted to the commercial sector.
The government gradually increased the price of LPG for households while implementing a large-scale targeted cash transfer mechanism, it said.
"The programme successfully eliminated distortions in the LPG market, with limited adverse consequences for the poor, and the fiscal savings obtained from the reduction in subsidies fully offset the costs of the targeted cash transfer," the report stated.
In its report, the Bank said the global economic growth is forecast to edge up to 2.5% in 2020 as investment and trade gradually recover from last year's significant weakness but downward risks persist.
America's growth is forecast to slow to 1.8% this year, reflecting the negative impact of earlier tariff increases and elevated uncertainty. Euro Area growth is projected to slip to a downwardly revised one% in 2020 amid weak industrial activity, it said.
The growth rate for Bangladesh has been projected to remain above seven% through the forecast horizon and, in Pakistan, it is projected to languish at three% or less through 2020 as macroeconomic stabilisation efforts weigh on economic activity, the Bank said.
"With the growth in emerging and developing economies likely to remain slow, policymakers should seize the opportunity to undertake structural reforms that boost broad-based growth, which is essential to poverty reduction," the World Bank Group Vice President for Equitable Growth, Finance and Institutions, Ceyla Pazarbasioglu, said.
"Steps to improve the business climate, the rule of law, debt management, and productivity can help achieve sustained growth," Pazarbasioglu said.