The World Bank on Sunday revised India’s growth rate projection to 6% for the 2019-’20 financial year, PTI reported. However, it said that if the monetary policy remains accommodative, the country would gradually recover to 6.9% in 2021 and 7.2% in 2022.

In its latest edition of the South Asia Economic Focus, the bank observed that this is the second consecutive year that India’s economic growth decelerated. In 2018-’19, it stood at 6.8% while in 2017-’18 it was 7.2%. The report was released before the yearly meeting of the World Bank with the International Monetary Fund.

The Indian economy suffered a major broad-based growth deceleration as private consumption reduced on the demand side, the report said. Weakened growth in industry and services on the supply side was also recorded.

In 2018-’19, the headline inflation was recorded at an average of 3.4% and stayed below the RBI’s target of 4% in the first half of 2019-’20. This led to the RBI’s easing of monetary policy with a cut of cumulative 135 basis points in the repo rate since January.

The current account deficit had broadened to 2.1% of the Gross Domestic Product in 2018-’19 from 1.8% in 2017-’18, which affected the trade balance. “The general government deficit is estimated to have widened by 0.2 percentage points to 5.9 per cent of the GDP in 2018-19,” the report said. “This is despite the central government improving its balance by 0.2 percentage points over the previous year. The general government debt remained stable and sustainable – being largely domestic and long term – at around 67 per cent of GDP.”

The report also noted that the Goods and Service Tax and demonetisation along with the stress on India’s rural economy and high unemployment rates had increased the risks for the economically backward households. Therefore, the significant economic slowdown in the first quarter and high frequency indicators depicted that the output growth would not go beyond 6% for the full fiscal year, the report said.

The World Bank said that the primary policy hurdle for the country would be to address the sources of softening private consumption and the structural elements behind weak investment. “This will require restoring the health of the financial sector through reforms of public sector banks’ governance and a gradual strengthening of the regulatory framework for NBFCs, while ensuring that solvent NBFCs retain access to adequate liquidity,” the report added.

It would also entail restoring the financial sector through governance reforms of public sector banks and eventually making the regulatory framework of the NBFCs strong and making sure that solvent NBFCs still have access to sufficient liquidity. The World Bank added that primary sources of risk included external shocks that lead to tighter global financing situations and new NBFC defaults that trigger a fresh impact on the financial sector’s stress.

The World Bank’s projections come at a time when India’s GDP growth rate slipped to a six-year low of 5% in the April-June quarter. This was the fourth straight quarter of slowdown. The Reserve Bank of India on October 4 revised India’s projected growth rate for 2019-’20 to 6.1%. The Asian Development Bank had cut its growth forecast from 7% to 6.5% in September.

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