The World Bank has said in its Global Economic Prospects Report for 2019 that the Indian economy will grow at a rate of 7.5% during the 2019-’20 financial year, and beyond. The economy grew at just 5.8% in the January-March quarter and 6.8% in 2018-’19.
However, the World Bank warned that “skirmishes”, such as the air battle between Indian and Pakistani jets following the Balakot strikes, could increase uncertainty and impact investments. Indian Air Force jets had carried out strikes in Balakot in Khyber Pakhtunkhwa province of Pakistan on February 26, in retaliation for the killing of 40 security personnel in Pulwama 12 days prior. On February 27, Indian and Pakistani jets engaged in a dogfight after Pakistani aircraft violated Indian airspace.
“Renewed conflict in various parts of the world – the Korean Peninsula, the Middle East and North Africa, South Asia, the South China Sea, Sub Saharan Africa, or Ukraine – could severely disrupt regional [economic] activity,” the World Bank said in its report. “Skirmishes between India and Pakistan in February are a reminder that latent geopolitical tensions can flare up at any time.”
The international financial institution said that uncertainty from the possibility of a no-deal Brexit can also adversely impact South Asian economies including India, Bangladesh, Pakistan and Sri Lanka. “Uncertainty about the Brexit process poses a risk to some South Asian economies which have preferential trade agreements or generalized system of preferences with the European Union and significant exports to United Kingdom,” it said.
In April, Britain and the European Union agreed to extend the last date for Brexit to October 31. British Prime Minister Theresa May has said that she will resign on June 7.
The World Bank said that the decline in India’s growth rate to 5.8% during the fourth quarter of 2018-’19 has contributed to a decline in its international reserves, now covering only three months of imports. Overall, the World Bank said that growth in India “remains solid, supported by improved confidence, slowing inflation, and still robust investment”. The bank said that India will reap the benefits of recent policy reforms by the government.
China, on the other hand, will continue to grow at a pace well below its double digit growth of previous decades. The World Bank said the Chinese Gross Domestic Product will grow at 6.2% in 2019-’20, lower than the 6.6% estimated for the 2018-’19 financial year.
Pakistan’s economy is projected to grow at 3.4% in 2019-’20, a steep fall from the 5.8% in 2018-’19. The country has been grappling with an economic crisis and has sought a bailout from the International Monetary Fund. The IMF has promised Islamabad $6 billion over five years, but this requires approval from its board of directors in Washington DC.
The bank also said that global economic growth will slow down from 2.9% in 2018-’19 to 2.6% in 2019-’20, “reflecting weaker-than-expected international trade and investment at the start of the year”.