The World Bank on Wednesday in its latest update scaled down India's economic growth rate projection to 4.7 per cent for 2013-14 from its earlier estimate of 5.7 per cent, saying growth this year will be hampered by weak numbers in the first quarter.
With this, the World Bank has joined a host of other agencies to lower India's GDP growth below 5 per cent, after the growth rate fell to four-year low of 4.4 per cent in the first quarter of 2013-14.
The update said, “Two consecutive months of negative business sentiments and higher interest rates are likely to limit the potential recovery in Q2."
However, it was hopeful of a recovery in the second half of FY2014, which will carry over into the next financial year.
Most recently, its multi-lateral agency counterpart - the International Monetary Fund (IMF) - pegged India's economic expansion at 4.25 per cent for 2013-14.
If India's economy indeed grows at the rate projected by IMF or the World Bank, it would be the lowest economic expansion in 11 years. Before this, the economy grew by lower rate of 4 per cent in 2002-03.
All the same, the union finance ministry has been saying that economic growth would be over five per cent and may be closer to 5.5 per cent, while the Prime Minister's Economic Advisory Council (PMEAC) in its Economic Outlook report had cut India's GDP growth projection to 5.3 per cent for the current fiscal from the earlier estimate of 6.4 per cent.
Many brokerage firms and foreign banks, including HSBC and JP Morgan have forecast the GDP growth rate to be below 5 per cent for 2013-14.
India may use FX reserves
India may have to dip into its foreign exchange reserves to finance CAD in 2013-14, the World Bank said.
"International reserves could decline somewhat in 2013-14 but would still amount to a comfortable import cover of approximately five months," the World Bank said in its latest India Development Update.
Economic Affairs Secretary Arvind Mayaram had said earlier that India would finance its CAD this year without drawing down on its reserves.