India is projected to grow at 8% over the current fiscal year (April 1- March 31), and 7.1% over the next (FY 2023-24) fiscal year, the World Bank said in its twice yearly South Asia Economic Focus Reshaping Norms: A New Way Forward, released on Wednesday, in the run-up to the World Bank IMF Spring Meetings. The country is estimated to have grown at 8.3% in the fiscal year that just passed, following a contraction of 6.6% in the previous year owing to the COVID-19 pandemic.
For the South Asia region, growth is expected to be slower than projected, by 1 percentage point, at 6.6% in 2022 and 6.3% next calendar year. This is due to Russia’s war on Ukraine, which has impacted the region, when it was already experiencing “uneven and fragile” growth, rising commodity prices, bottlenecks to supply and financial sector vulnerabilities.
The impact of the war so far has been further inflation, deteriorating current account balances and growing fiscal deficits, according to the report.
External shocks
“Given these challenges, governments need to carefully plan monetary and fiscal policies to counter external shocks and protect the vulnerable, while laying the foundation for green, resilient and inclusive growth,” Hartwig Schafer, World Bank Vice-President for South Asia, said in a press statement.
There is limited space for fiscal stimulus and supply bottlenecks are of greater significance than insufficient effective demand, Hans Timmer, World Bank Chief Economist for the South Asia region, told reporters on a briefing call on Wednesday.
Asked what the impact of sanctions on Russia would be on the South Asian region, Mr. Timmer said the impact was indirect, rather than direct, given the relatively low proportion of imports and exports that go to and from Russia and Ukraine. The indirect impact was via the global impact of sanctions on commodity and financial markets.
All countries in the region will face challenges ahead, despite “solid” GDP growth during recovery, as per the report.
In the case of India, household consumption will be constrained due to the incomplete recovery of the labour market and inflationary pressures.
Greener fuels
The report suggests that countries in the region move towards greener fuels and commodities as a response to rising fuel prices and the introduction of green taxes. This would also be a new source of government revenue.
Mr. Timmer said the green tax recommendation applied to both firms that were polluting as well as energy prices, when asked by The Hindu whether the World Bank was advocating taxing fuel consumption when prices were already high.
“It is really inefficient to support vulnerable households by subsidising energy,” Mr. Timmer said. “The money can be much better used when the right price for energy is being charged and then redistributed in a way that really targets the poor households,” he said, adding that it was a gradual process and could not be accomplished “overnight”.
