The World Bank on Thursday downgraded India’s economic growth forecast to 6.5% for the current fiscal year (2022-’23) from its earlier estimate of 7.5% announced in June. The growth estimate was revised downwards by one percentage point due to deteriorating international environment.

Last week, the Reserve Bank of India had also cut its growth forecast to 7% from an earlier estimate of 7.2% after increasing the repo rate by 50 basis points to 5.9% to fight inflation. On Monday, the United Nations Conference on Trade and Development had projected that India’s economic growth will decline to 5.7% this year from 8.2% in 2021.

In its biannual report on South Asia, the World Bank on Thursday said the Indian economy is expected to grow up to 7.0% in the next fiscal year (2023-’24), before settling down to 6.1% in 2024-’25.

“The spillovers from the Russia-Ukraine war and the global monetary policy tightening cycle weigh on India’s economic outlook: elevated inflation on the back of higher prices of key commodities, heightened global uncertainty, and rising borrowing costs will affect domestic demand while slowing global growth inhibits India’s export growth,” the report stated.

This is the third time that the World Bank has revised its growth forecast for India in the current financial year. In April, the financial body had revised India’s projected economic growth to 8% from the previous estimate of 8.7% in January.

In the latest report, the World Bank also cited the uneven recovery from the impact of the coronavirus pandemic in South Asia for trimming India’s growth forecast.

The bank, however, said that India is recovering stronger than the rest of the world. The Indian economy grew by 8.7% in the fiscal year that ended on March 31.

“The Indian economy has done well compared to the other countries in South Asia, with relatively strong growth performance... bounced back from the sharp contraction during the first phase of Covid-19,” Hans Timmer, World Bank chief economist for South Asia, told PTI.

Although India economic estimates are above the South Asian average, the report stated that the recovery in contact-intensive services lagged overall growth.

“Despite improved balance sheets of banks and corporate sector, increased capacity utilisation in manufacturing, and production linked incentive scheme, private investment will be dampened by heightened global uncertainty, elevated input prices and rising borrowing costs,” the report said.

It added: “Private consumption growth will be constrained by high inflation and persisting weakness in some sections of the labor market.”

The report, released ahead of the annual meeting of the International Monetary Fund and the World Bank, also predicted a 9.5% contraction in Sri Lanka. The island nation has been in the grip of a dire economic meltdown and has defaulted on its foreign loans.