World Bank cuts India’s GDP growth outlook to 6.5 per cent

Citing the deteriorating global scenario, the World Bank downgraded India’s GDP forecast for the current fiscal to 6.5 per cent. In June 2022, it had projected that Indian economy will grow at a rate of 7.5 per cent.

In April also, the World Bank had cut India’s GDP forecast from 8.7 per cent to 8 per cent. At the same time though, it noted that India’s economic recovery is faster than the rest of the world. The forecast has come just days before its annual meeting.

The Reserve Bank of India (RBI) had also cut the economic growth projection for 2022-23 from 7.2 per cent to 7 per cent, citing tightening of rates by US Federal Reserve and the prevailing geopolitical scenario.

The growth of bank deposits across the market have slowed down to 10 per cent year-on-year (YoY) as per the Reserve Bank of India’s (RBI) data, said Kotak Securities Ltd in a report.

According to the report, there is a perceptible slowdown in the bank deposit growth in metropolitan, semi-urban and rural India with household savings being relatively weak.

Further the bank branch expansion has slowed down mainly by the public sector banks.

The report said private banks continue to gain market share but their dominance is much more in urban markets as compared to rural and semi-urban markets.

The current account, savings account (CASA) deposits has slowed although the ratio has moved up higher to approximately 45 per cent led by higher savings ratio in recent years.

The private banks have increased their market share in current account and in the corporate segment while public banks have been losing share steadily in the household and government sectors, Kotak Securities said.

As per the report, the duration of term deposits continues to fall, especially post Covid and the share of non-individuals is quite high at 45 per cent of the overall term deposits.

Given the nature of deposits where non-individuals have a higher share in term deposits, the duration of these deposits has declined but it raises concern as it is likely to be sensitive as interest rate reverses, Kotak Securities said.

The growth of CASA deposits is at a much faster pace than term deposits partly driven by slower demand for deposits as loan growth has been slow or probably due to excess savings during the Covid period. “As loan growth recovers, we are likely to see a greater push towards mobilising deposits, which implies that the competition would shift from CASA deposits to term,” Kotak Securities said.

The trend to save through CASA deposits is much higher post demonetization and has accelerated during Covid as well. Trends are showing a sign of reversal as the growth rate has started to slow across regions and banks.

Rising international oil prices saw the Indian rupee depreciating to Rs 81.94 against the US dollar.

The rupee opened at Rs 81.52 on Thursday at the interbank forex market and then went down to Rs 81.94. Experts said demand for dollars from oil importers resulted in a fall in rupee.

The oil prices are expected to climb up as the producing nations have announced their plans to cut production.

Meanwhile India’s account deficit likely widened to its highest in nearly a decade in the April-June quarter, driven by soaring global commodity prices and the biggest capital outflows since the global financial crisis of 2008, a Reuters poll found.

The median forecast in a Sept. 9-15 Reuters poll of 18 economists showed India’s current account deficit last quarter was $30.5 billion, or 3.6 per cent of gross domestic product, the widest in nine years.

Forecasts ranged between $28.5-$34.0 billion or 2.4 per cent-5.0 per cent of GDP. For the Jan-March quarter, the deficit was less than half that size at $13.4 billion, about 1.5 per cent of GDP.

“A near decade-high current account deficit last quarter transpired in an environment where the trade imbalance almost hit a new high every month and the rupee sunk to new record lows every week,” said Vivek Kumar, an economist at QuantEco Research.

“Pressures for funding the current account deficit are already being felt in the currency, and in an environment where most global central banks are tightening and the RBI’s currency reserves are declining, those pressures are likely to intensify.”

While the rupee has depreciated around 7 per cent against the greenback since January 2022, it had lost around 20 per cent during the taper tantrum crisis of 2013 when the US Federal Reserve suddenly cut its government bond purchases.

Even as New Delhi responded to a widening trade gap by raising import duty on gold at the end of June, the full extent of that measure will only show this quarter.