India’s growth forecast reduced to 6.5% by World Bank

The World Bank cut India’s growth forecast for this financial year by a full percentage point and predicted a 9.5% contraction in crisis-hit Sri Lanka, as rising commodity prices and debt trouble hit economies in South Asia.

The bank mentioned the impact of war in Ukraine, which has caused a rise in commodity prices, and the uneven recovery from the impact of the COVID-19 pandemic in the region. It forecast inflation in the region rising to 9.2% this year before gradually subsiding.

Last week, the Reserve Bank of India (RBI) cut its growth forecast to 7% from an earlier estimate of 7.2% after raising the benchmark repo rate by 50 basis points to 5.9% as it battles to contain high inflation - seen to remain above 6% until early 2023.

Growth estimates for the region - comprising India, Pakistan, Afghanistan, Bangladesh, Sri Lanka, Nepal, Bhutan and the Maldives - were revised down to 5.8% from 6.8% forecast in June. India’s forecast was cut down to 6.5% from 7.5%.

Martin Raiser, World Bank Vice President for South Asia, urged the governments to use scarce resources to protect people. “In the face of these shocks, countries need to build stronger fiscal and monetary buffers,” Raiser said.

The World Bank also urged the governments to ease restrictions on labour movement by introducing flexible visa policies and supporting migrant workers to protect long-term development prospects.