World Bank gave a big blow to India, inflation may increase - Newztezz Online

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Tuesday, October 3, 2023

World Bank gave a big blow to India, inflation may increase

The World Bank said that inflation may increase more than expected to 5.9 percent in the financial year 2024, which is very close to the upper limit of the Reserve Bank of India's target band of 2-6 percent.

The whole world is stunned to see India's growth. All the financial agencies, be it the World Bank or the IMF, are confident about India's growth. Recently the World Bank has given a shock to China on the growth front. Gradually, other countries are also facing or have already suffered a setback in terms of growth. But this time India has received a big blow from the World Bank. This setback is not on the growth front, but on the inflation front. The World Bank has given clear indications that inflation may increase in India. The bank has even increased its estimate by 70 basis points. Let us also tell you what kind of warning has been given to India by the World Bank regarding inflation.

There will be a decline in demand

The World Bank on Tuesday made no changes in India's growth forecast for the financial year 2024 and kept it at 6.3 percent. At the same time, concern has been expressed about inflation. The World Bank increased India's inflation forecast from 5.2 percent to 5.9 percent. The World Bank said in its India Growth Outlook that private consumption growth is likely to slow down. Explaining the reason for this, the World Bank said that the pace is now expected to slow down after the pandemic.

Apart from the European Union, due to slow growth in major business partners, the external demand for Indian goods has decreased and there has been a decline in esports. Earlier, due to strong domestic demand, the country's economy had grown at a pace of 7.8 percent in the first quarter. World Bank said that now domestic demand will remain strong, but the speed will remain low.

Private consumption growth likely to slow down

According to the World Bank report, private consumption growth is likely to slow down. There has been a decline in demand after the pandemic. Food inflation also reduced demand. There has been a decline in demand especially from the low income group. The World Bank said that inflation may increase more than expected to 5.9 percent in fiscal year 2024, which is very close to the upper limit of the Reserve Bank of India's target band of 2-6 percent.

Oil is a cause for concern

The World Bank said that due to abnormal rains during the monsoon months, there was a huge increase in food prices in July 2023. Although it declined in August, pressure on headline inflation is expected to continue during the remaining months of the financial year. The World Bank report further said that oil, even though lower than the highs seen during 2022, still remains a matter of concern. India's inflation declined marginally to 6.8 percent in August, whereas in July it was at a 15-month high of 7.4 percent. Experts indicate that it is expected to decrease further in September.

No change in policy rate since last three times

The World Bank said that last year the policy rate was increased by the RBI, which helped in reducing inflation, the effect of which is now expected to gradually reduce. RBI's Monetary Policy Committee will decide on the policy rate later this week, which has remained unchanged since February. While making the last changes in February, MPC had increased the repo rate by 25 basis points and the repo rate came down to 6.5 percent.

Improvement in fiscal deficit

On the fiscal deficit front, the World Bank has definitely applied some balm and has shown signs of slight improvement. The general government deficit is estimated to decline from 9 percent of GDP in the last financial year to 8.7 percent in fiscal year 2024. The World Bank said that the subsidy program could impact the fiscal roadmap before the 2024 general elections. Fiscal intervention has been limited so far, but fiscal consolidation could be delayed by subsidy programs to mitigate the impact of food inflation on vulnerable households before general elections in 2024, the report said. Last month, the government had announced a subsidy of Rs 200 on LPG cylinder for all households. The World Bank has projected public debt to stabilize at about 83 percent of GDP in fiscal year 2024, which will fall to 82.4 percent in fiscal year 2025.

Conform to others' expectations

The World Bank's GDP growth predictions are in line with others' estimates. S&P Global Ratings has recently maintained India's growth rate at 6 percent despite sharp changes in inflation figures. Fitch also maintained India's growth forecast, while the Asian Development Bank reduced the forecast to 6.3 percent. The Reserve Bank of India has estimated the average growth rate to be 6.5 percent in FY 24. The World Bank estimates that the growth rate will increase to 6.4 percent in fiscal year 2025 and inflation will fall to 4.7 percent.


 


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