New Delhi: World Bank on Tuesday scaled down India's growth forecast to 6.1 percent for the current fiscal from 7 percent projected six months ago.
The decline in the growth forecast is largely due to the decline in agriculture sector which is expected to grow at 2 percent during 2013-14 against the previous estimate of 2.7 percent despite normal monsoon projection.
However, the multi-lateral funding agency said that India is regaining economic momentum and growth is expected to recover gradually to its high long-term potential.
As per the latest India Development Update of the World Bank, Indian economy would grow by 6.1 percent in 2013-14 on account of robust domestic demand, strong savings and investment rate.
Growth projections for 2013-14 has been arrived at by taking into account present internal and external factors.
"Economic growth is likely to accelerate to over 6 per cent during the current financial year (April 2013-March 2014). Growth is expected to increase further to 6.7 per cent in 2014-2015," said Denis Medvedev, Senior Country Economist, World Bank, India.
"Recent data point to some improvements in economic activity: inflation and trade deficit came down in recent months, while private consumption and investment growth had accelerated in the third quarter of 2012-2013," he said.
According to the Update, a twice yearly report on the Indian economy and its prospects, GDP growth during 2012-13 would be around 5 percent, lowest in the decade.
As per the International Monetary Fund (IMF) report released yesterday India's GDP is likely to improve to 5.7 percent during year ending December 2013 and further to 6.2 percent a year after.
Last week, Prime Minister's Economic Advisory panel had pegged the growth rate for the current fiscal at 6.4 percent.
As per the Economic Survey 2012-13, India's GDP growth is is expected to be between 6.1-6.7 percent in 2013-14.
"Despite the current downturn, long term prospects remain bright for India. India possesses the fundamentals to grow at sustained high rates over the next several decades," said Martin Rama, World Bank’s Chief Economist for the South Asia region.
"The long-term prospects for India is quite bright...We certainly see possibility of 8 percent growth going forward," he said.
"With the working age population increasing by 7 million people each year, the country will need to improve its business climate to attract the private sector investment needed for these new entrants to find productive jobs, thereby reducing poverty and boosting shared prosperity," he added.
In the longer term, given India?s demographic transition, the country will still be a relatively young nation 20 years from now. This is likely to generate significant volumes of savings and investment over the coming years, he said.
The latest Update noted that in recent months, both inflation as measured by the wholesale price index and the trade deficit have declined. Inflation fell below 6 percent and core inflation is now within the Reserve Bank of India?s (RBI) comfort range.
With the stabilisation of the rupee and the expectations of a good monsoon, inflation is expected to decline further in the coming months, it said.
The fiscal deficit too is likely to decline as the government has renewed its commitment to fiscal consolidation, said the Update.
A stronger fiscal stance and further improvements in economic activity could provide room for additional rate cuts, it added.
The current account deficit reached a record high in 2012-13, but is expected to narrow in the medium term.
"The record widening of the current account deficit has been driven primarily by strong import flows-- particularly fuel-- and stagnant exports, both of which appear to be turning around," Medvedev said.
The current Update also focused on India?s march towards universal health coverage and its fiscal implications.
Public spending on health is about 1 percent of GDP, significantly below other countries with similar levels of income - while out-of-pocket payments represent about 70 percent of health expenditures? one of the highest ratios in the world, it said.
India also lags in health impacts achieved from its spending. Large disparities in health outcomes are still evident across states and social groups, it said.
The additional expenditure required to finance the costs of progressing towards universal health coverage could range from 0.4 percent to 1 percent of GDP by the end of the 12th Five-Year Plan.
First Published: Tuesday, April 30, 2013, 13:50