The World Bank on Sunday slashed its growth forecast for India’s current fiscal year to 6 per cent, down from 7.5 per cent, warning that the “severe” slowdown could further weaken the country's stuttering financial sector.

In its last forecast in April, the bank had said that India’s economic outlook was strong and expected growth of 7.5 per cent during the current fiscal year that began in April.

But Asia’s third-largest economy is currently growing at its slowest pace in six years, expanding just 5 per cent in the April-June quarter, hit by flagging consumer demand and a slackening in government spending.

According to Hans Timmer, World Bank’s chief economist for South Asia, the slowdown is mainly due to investor sentiment. Because of the uncertainty in the world, everywhere one sees investors are just hesitating.

“Once they start delaying, that has a knock-on effect. And you see that on the company side and you see it in households sides,” he told PTI.

India’s industrial output also shrank at its fastest rate in more than six years in August, data released last week showed, indicating that a slew of government measures had yet to underpin a recovery.

In an effort to kick-start the economy, India’s central bank has cut interest rates five times this year, and underlined the challenge for policymakers by downgrading its growth forecast to 6.1 per cent from 6.9 per cent earlier this month.

Last week, ratings agency Moody’s Investors Service lowered its growth forecast for India to 5.8 per cent for the current fiscal year from 6.2 per cent, adding that a long period of weak growth will hamper the government’s fiscal consolidation plans.

Deficit concern

The World Bank’s latest forecast also underlined similar concerns linked to slowing growth and New Delhi’s decision to cut the corporate tax rate, which will cost about Rs 1.45 lakh crore in tax revenues.

“While the authorities have shown steadfast commitment to fiscal prudence, the significant growth deceleration as well as the corporate tax cuts undertaken to counter it come with heightened risks of fiscal slippage,” the bank’s report said.

The bank said it expects the economy to gradually recover, growing at 6.9 per cent in the 2020-21 starting next April and 7.2 per cent in 2021-22.