World Bank Predicts 6 Percent Growth in India for Fiscal Year 2014

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Jan. 21 – The World Bank’s Global Economic Prospects report, released last week, projects India’s growth rate to be 6.2 percent for the fiscal year 2014. This is a vast improvement from India’s weak estimated 2013 growth rate of 4.8 percent. The dismal 2013 rate represents an 11-year low, slipping below even 2012’s rate of 5.0 percent.

India’s economy already started to pick up steam at the end of 2013. Part of this was cyclical in nature, but in part this was also due to improving business sentiments and surging regional exports. Exports were driven by strengthening external demand and the depreciation of the India rupee. The depreciation was triggered by “a withdrawal of portfolio capital … in the middle of the year, stemming from apprehensions of tapering of US quantitative easing,” according to the report. While this hit India particularly hard in the middle of the year, the rupee did appreciate subsequently as a result of policy interventions to support foreign exchange markets.

Looking forward to 2014, the World Bank predicts “growth in India will be led by recovery in global demand and an increase in domestic investment, subject to downside risks.” Global GDP growth is forecasted to improve from 2.4 percent in the 2013 fiscal year to a healthier 3.2 percent, with growth strengthening in both developing and high-income countries. Downside risks noted by the report included political uncertainty as a result of the upcoming elections, entrenchment of inflation expectations, tapering of US quantitative easing, and fragile global growth.

Growth in India is forecast to improve even further past 2014, reaching 6.6 percent in 2015-16, and 7.1 percent in 2016-17. Kaushik Basu, Chief Economist and Senior Vice President at the World Bank, cautioned that developing countries should be careful to avoid “policy stasis” if they are to achieve the projected growth rates. “The projected pickup will depend critically on macroeconomic stability, sustained policy reforms, and progress in reducing supply-side constraint.”

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