World Bank cuts India growth forecast to 4.7% this year

NEW DELHI - The World Bank Wednesday cut its growth forecast for India to 4.7 per cent this year, but said it should accelerate in 2014 as the rupee's dive translates into an export-led boost for Asia's third-largest economy.

The rupee's recent plunge against the dollar has made India's exchange rate "more competitive than the developing country average", giving the nation's exports a chance to outperform emerging market rivals, said Martin Rama, the Bank's chief South Asia economist.

"We remain upbeat on growth potential," he told a news conference. Growth in India's gross domestic product should pick up in the 2014-15 financial year to 6.2 per cent, according to the World Bank.

This year's forecast of 4.7 per cent expansion, broadly in line with many private economists, was down from an April forecast of 6.1 per cent, with the bank blaming factors including a slowdown in manufacturing and investment and weak business confidence amid high interest rates.

But the projection by the World Bank, whose focus is on poverty eradication through development, was nearly one percentage point above the 3.8 per cent growth forecast made by the International Monetary Fund (IMF), its sister organisation, earlier this month.

The IMF, which also cited lacklustre activity in manufacturing and high interest rates as dampening demand and deterring investment, said stronger exports should raise India's growth rate to five per cent in 2014.

Bank officials declined to be drawn on the divergence between their growth forecast and the prediction of the IMF, the guardian of global budget orthodoxy.

The IMF forecast had angered India's Congress-led government, which is struggling to turn the economy around ahead of polls due by next May.

The government, which has forecast five to 5.5 per cent growth for this year, called the IMF's projections "overly pessimistic" and demanded a review of its methodology.

Martin said the Bank sees "a positive outlook (for India) growing forward", citing low core inflation, an expected bumper farm crop, stronger exports and the government's stepped-up commitment to economic reforms.

While output growth in the first quarter of this financial year fell to 4.4 per cent, it should rebound strongly in the second half, hitting around six per cent or more in the final quarter, the Bank said.

India recorded five per cent growth last year, the slowest in a decade, and far below the "Indian Summer" of the last decade, when annual expansion regularly topped eight and nine per cent.

India's downturn comes as neighbouring China is forecast by the World Bank to achieve its growth target of 7.5 per cent this year.