World Bank goes bullish on India's growth story

The World Bank has upgraded India’s economic growth outlook for the current year, giving a shot in the arm to the beleagured Manmohan Singh government which is viewed by its critics as suffering from policy paralysis and not doing enough to take fast-track economic reforms.

Many international institutions and banks had lowered India’s economic growth projections, sparking fears that such gloomy predictions would influence foreign investors from investing in India.

The World Bank has pegged India’s gross domestic product growth at 6.9 per cent for the fiscal year 2012-13 as against 6.8 per cent forecast earlier in its January review.

The multi-lateral agency has also pegged India’s growth rate above 7 per cent in the next two fiscal years 2013-14 and 2014-15.

“India will see growth increasing to 6.9, 7.2 and 7.4 per cent in fiscal years 2012-13, 2013-14 and 2014-15, respectively," the World Bank said in the report titled 'Global Economic Prospects'.
The Bank, however, said that the developing nations should re-emphasise on medium term development strategies and prepare for a long period of volatility in the global economy.

But in a note of caution, the Bank pointed out that if the situation in Europe deteriorated further, the impact will be felt by all developing countries. Europe accounts for 60 per cent of India’s exports.

According to its forecast, the global economic growth will be 2.5 per cent this year. For a weaker than expected 6.5 per cent growth in 2011-12, the Bank said, it was due to policy uncertainties, stalled reforms and entrenched inflation.

Debt crisis

Andrew Burns, the lead author of the report, said developing countries need to move to reduce vulnerabilities by lowering short-term debt levels, cutting budget deficits and returning to a more neutral monetary policy stance.

The World Bank’s forecast comes close on the heels of International Monetary Fund lowering India’s growth outlook for this year due to slowdown in investment.

The IMF had lowered India’s GDP forecast for the calendar year 2012 to 7 per cent from its earlier forecast of 7.2 per cent. Global rating agency Standard and Poor’s too downgraded India’s outlook from stable to negative in April.