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The World Bank raised India’s economic growth forecast to 10% for fiscal year 2022, in its latest South Asia Economic Focus released on Wednesday.

Key takeaways

“The infrastructure focus of Union budget 2021-22 is expected to aid the growth momentum and revive domestic demand.”

“Given the significant uncertainty pertaining to both epidemiological and policy developments, real GDP growth for FY21/22 can range from 7.5% to 12.5%, depending on how the vaccination campaign proceeds, whether new restrictions to mobility are required and how quickly the world economy recovers. Over the medium term, growth is projected to stabilize within a 6-7% range.”

“Public consumption will contribute positively, but pent-up private demand is expected to fade by the end of 2021, as investments will pick up very gradually spurred by a large government capital expenditure push.”

“Negative spillovers from financial sector distress, especially as forbearance measures expire, remain a risk to the growth outlook. Nonetheless, the Reserve Bank of India’s liquidity stance is also expected to remain accommodative during the fiscal year ending in March 2022.”

“The COVID-19 shock will lead to a long-lasting inflexion in India’s fiscal trajectory. The general government deficit is expected to remain above 10% of GDP until FY22. As a result, public debt is projected to peak at almost 90% of GDP in FY21 before declining gradually thereafter.”

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