The World Bank on Tuesday pegged India's economic growth at 5.4 per cent in the current year, lower than the 5.7-5.9 per cent projected by the finance ministry. "In India, the region's largest economy, growth measured in factor cost terms is projected to decelerate to 5.4 per cent in the 2012 fiscal year (ending in March 2013) from 6.5 per cent in 2011,” the World Bank said in its Global Economic Prospects report released on Tuesday.
India's economy grew 5.4 per cent in the first half of the current financial year. As such, the World Bank expects India's economy to stay where it was in terms of growth in the second half as well.
For the next financial year, the World Bank forecast India's GDP growth at 6.4 per cent. "India's GDP growth is projected to strengthen to 6.4 percent in the 2014 fiscal year, with a stronger rebound held back in part by difficult global economic conditions,” it added.
The multi-lateral agency projected India's economy to expand by 7.10 per cent in 2014-25 and 7.30 per cent in 2015-16.
It means that for the first four years of the 12th Five-Year Plan (2012-13 to 2016-17), India's economy would grow at an annual average rate of 6.55 per cent. The Planning Commission had set a target of eight per cent annual average growth in the five-year period. However, this is the most promising target of the three situations it had given.
If the World Bank projections are taken as true, the Planning Commission's target looks difficult, since in the fifth year of the plan, the economy needed to grow by over 13 per cent to achieve eight per cent growth a year on an average. The report said a range of policy reforms was initiated in the second half of 2012 in India and those restored investor confidence and led to an increase in equity inflows.
However, several reforms still remain pending, including land acquisition, insurance, pensions, mining, and direct taxes, that require parliamentary approval.
Moreover, investment growth has been relatively weak in recent quarters, the World Bank said adding that the fuel subsidy burden and year deficit remain high, and the country needs to attract substantial foreign investment inflows to finance a larger current account deficit (CAD).
India's CAD rose to a record 5.4 per cent of GDP in the second quarter of this fiscal against 4.2 per cent in the year ago period.
Inflows to large middle income countries such as China and India are expected to decline this year. The World Bank said that slow growth and some regulatory uncertainties held back the investment flows to India, because of which, foreign direct investment inflows for the whole year are expected to fall around six per cent to $600 billion.