Thursday, 11 Sep, 2025
By: Sutanu Guru
The Reserve Bank of India has recently lowered its forecast for GDP growth from 7.2% to 7%. Image Source: IANS
The frequent changes in forecasts and estimates reflect the deep uncertainties that have engulfed the global economy as many large economies in Europe stare at a recession and even the United States economy’s growth and recovery engine seems to have stalled.
The World Bank is the latest to join the chorus that sings a less celebratory tune for the prospects of the Indian economy. As reported across media, it has slashed the GDP growth forecast for the Indian economy to 6.5% for the current financial year on October 6, 2022. Originally, the Wold Bank had forecast a 8.7% GDP growth rate for India for 2022-23. In April, 2022, it reduced the figure to 8%. In June 2022, it reduced the forecast further to 7.5%. And now the growth forecast has been slashed by a full percentage point to 6.5%. From the original 8.7%, a GDP growth forecast of 6.5% represents a steep fall. Besides, it is very unusual for forecasts to change so rapidly in such a short span of time. The frequent changes in forecasts and estimates reflect the deep uncertainties that have engulfed the global economy as many large economies in Europe stare at a recession and even the United States economy’s growth and recovery engine seems to have stalled. The persistent hike in interest rates by the US Central Bank to tame inflation that was threatening to touch double digits will inevitably lead to considerable slowdown in the largest economy of the world, if not an outright recession. When the global economy faces such strong headwinds, there is simply no way that the Indian economy will not be affected.
As the accompanying chart indicates, almost all major institutions have revised downwards their forecasts for the Indian economy. The most pessimistic seems to be Nomura that presents an unrealistic and plaintive forecast of just 4.7% GDP growth. The most optimistic seems to be the IMF that has indeed downgraded its own forecast, but maintains that the Indian economy will grow at 7.4% in 2022-23. Barring a miracle, that seems extremely unlikely. The Reserve Bank of India has recently lowered its forecast for GDP growth from 7.2% to 7%. Going by past track record, that seems overly optimistic. A research based feature in the newspaper Mint based on four years of data revealed that the RBI forecasts have been higher than the actual numbers for 11 out of the 16 previous quarters. For instance, the RBI had forecast a 16.3% GDP growth rate for the April-June quarter of 2022-23. The actual growth rate was considerably lower at 13.5%. On balance, it does appear as if the World bank estimate of 6.5% GDP growth could be the most realistic one.
But there is a danger that, apart from global headwinds, even domestic economic factors could result in a situation where even a 6.5% GDP growth rate may not be possible. Latest data for September indicates that the PMI for the services sector in India. From 57.2 in August 2022, the PMI Business Activity Index for the services sector declined to 54.3, which is a six month low. The services sector happens to be the largest contributor to India’s GDP. Erratic monsoons have already compelled the government to admit that the Kharif food grains output will decline from 115 million tons last year to just about 105 million tons this year. On top of it, latest available data shows that growth in the Index of Industrial Production fell from 12.7% in June 2022 to 2.4% in July.
Its time to keep fingers crossed for the Indian economy.
