World Bank pegs India's growth at 6.8%

The World Bank on Wednesday said the Indian economy is expected to grow by 6.8%, compared to PM Manmohan Singh’s 7% projection and the 8.5% expansion witnessed in 2010-11. In addition, it warned that the 8% mark is unlikely to be regained anytime before 2013-14 due to moderation in demand, a deceleration in investment and heightened uncertainty in the wake of the global economic environment. Local factors such “policy uncertainty, stalled reforms, and deteriorating political and security conditions” are making things worse in South Asia, the multilateral agency said in the latest Global Economic Prospects. “Developing countries should prepare for further downside risks, as Euro Area debt problems and weakening growth in several big emerging economies are dimming global growth prospects.” The growth moderation in developing countries such as India is also expected to take a toll on the global economy, it added. The report said that a deterioration in the international bank funding conditions and the impact on local stock markets has caused a sharp depreciation in local currencies, such as the rupee, against the dollar in the second half of 2011. Although inflationary pressures are expected to ease, the depreciation is not helping the price situation ease the way it should. It also warned of weaker exports — something that was already visible — and moderation in worker remittances from overseas as well as capital flows due to the Euro Area crisis and problems in West Asia. In case of India, the World Bank said that household spending had been curbed due to persistently rising prices, that ate into real income and higher borrowing costs also affected demand. It, however, warned that there was limited space to introduce fiscal stimulus measures, similar to 2008-09, as the government was running a large fiscal deficit. Besides, monetary easing through lower policy rates may fuel inflation and impact the economy, especially the poor. In these circumstances, expenditure rationalization may help the government, especially to protect critical social schemes, the World Bank said.