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World Bank cut India’s projected growth rate from 7.5% to 6.5%.

High inflation rates and crisis in the global supply chain is going to affect economic growth of India as World Bank on Thursday slashed down growth rate forecast for India from 7.5 percent to 6.5 percent.

Indian economy which was severely impacted by the COVID-19 Pandemic and resultant lockdown bounced back in 2021 by growing 8.7%. The economy of the south Asian country was one of the fastest growing since the advent of COVID-19 Pandemic.

Re emergence of demand in domestic economy and increased rate of production and supply helped India to regain its position as fastest growing economy in the world. Increased exports from India to other economies also helped India to get back on the feet and perform strong resistance during global headwinds.

The latest decision by World Bank to cut India’s growth rate comes amidst concerns of a global economic recession due to high inflation and interest rates in various countries.

Hans Timmer, who is Chief Economist for South Asia in World Bank, said that India has done comparatively very better than other South Asian economies which are facing stark economic crisis. He also said that India showcased strong growth performance to bounce back from contractions during the first phase of COVID-19 Pandemic.

Due to high inflation in the Indian economy, Reserve Bank of India, which is central bank of the country was forced to hike key interest rate multiple times since May 2022. High repo rate will surely reduce cash flow in the economy which in turn will downsize the demand for goods and services.

Even though increasing interest rates are an effective way to counter high inflation in the country, it may sometimes push the domestic economy into recession. If an economy faces contractions in two or more quarters consecutively, it can be termed as a recession.

Along with the Reserve Bank of India, other central banks in the world also hikes the benchmark interest rates to fight the historic high inflation rates in their countries.

World Bank on Thursday released South Asia Economic Focus report which provides a detailed analysis of economic condition of South Asian economies. It also provides growth projections for each country in the region along with the numbers of entire south Asian region.