NEW DELHI: The World Bank has marked down India’s prospects for the current year even as investors stock up on equities in the hope that the Narendra Modi government will kickstart growth.

In its flagship publication Global Economic Prospects released on Tuesday, the World Bank said India’s economy will expand only 5.5 per cent in FY15 as opposed to 6.2 per cent in its January report. India’s economy expanded 4.7 per cent in FY14, according to official government statistics, marking a second consecutive year of sub-5 per cent growth.
Evidence from the first few months of the year indicates that the global economic recovery will not be as strong as initially expected. It is now pegged to expand only 2.8 per cent in 2014 compared with 3.2 per cent estimated initially.

“The setbacks of early 2014 included a severe winter in the United States but also geopolitical tension in Eastern Europe. Some rebound in activity from these setbacks is expected, but likely to be partial,” Kaushik Basu, chief economist and senior vice-president of the bank, wrote in his forward to the report.

It said India’s economy is expected to better in FY14 on the hope that reforms will address issues such as subdued manufacturing and lower investment growth that pulled down the economy.

“In South Asia, the acceleration is expected to be focused in India, as reforms are undertaken to ease supply-side constraints, particularly in energy and infrastructure,” the report said without taking note of India’s elections and the large mandate to the BJP.

The economic recovery assumes “reforms are undertaken to ease supply-side constraints (particularly in energy and infrastructure), improve productivity and strengthen the business environment, and that fiscal consolidation continues and a credible monetary policy stance is maintained.”

“A large number of projects, particularly in the infrastructure, steel and energy sectors, have been stalled in recent years in India,” the report said, adding that they also contributed to a rise in stressed loans of banks. “As these investment projects come on stream during the forecast period (2014-16), overall investment activity should pick up,” the report noted.

The bank has also lowered prospects for the coming years, pegging the growth for FY15 at 6.3 per cent compared with 6.6 per cent estimated initially and 6.6 per cent for FY16 down from 7.1 per cent .

“Medium-term forecasts have been marked down by nearly half a percentage point, reflecting the effects of slowing investment in recent years on potential growth, structural capacity constraints and sustained inflationary pressures,” the report said, giving reasons for the lower forecast for the South Asian region. The key risk to near-term forecast is weak monsoon because of El Nino.