The World Bank predicted on Tuesday that India’s GDP growth for FY23–24 will be 6.3% notwithstanding global challenges. The World Bank also forecasted that investment growth would continue to be strong at 8.9% and that service sector activity in India would grow at a rate of 7.4%. In contrast to the earlier projection of 6.6%, the World Bank reduced India’s growth forecast for 2023–2024 to 6.3% in its April report.
The latest India Development Update (IDU), the World Bank’s premier half-yearly report on the Indian economy, was released on Tuesday. According to the report, despite significant global challenges, India had one of the fastest growing major economies in 2022–2023 with a 7.2% growth rate.
“India’s growth rate was the second highest among G20 countries and almost twice the average for emerging market economies. This resilience was underpinned by robust domestic demand, strong public infrastructure investment and a strengthening financial sector,” World Bank said.
This fiscal, bank credit in India grew 15.8 per cent in the first quarter compared with 13.3 per cent in the first quarter of previous fiscal. India’s service sector activity is expected to remain strong with growth of 7.4 per cent and investment growth is also projected to remain robust at 8.9 per cent.
“An adverse global environment will continue to pose challenges in the short-term, ” said Auguste Tano Kouame, World Bank’s Country Director in India.
“Tapping public spending that crowds in more private investments will create more favourable conditions for India to seize global opportunities in the future and thus achieve higher growth.”
The World Bank expects that global headwinds will continue to persist and intensify due to high global interest rates, geopolitical tensions, and sluggish global demand and as a result, global economic growth is also set to slow down over the medium term.
About adverse weather conditions in India that contributed to a spike in inflation in recent months, World Bank in the report said the price rise is expected to decrease gradually as food prices normalize and government measures increase the supply of key commodities.
“While the spike in headline inflation may temporarily constrain consumption, we project a moderation. Overall conditions will remain conducive for private investment,” said Dhruv Sharma, Senior Economist, at the World Bank, and lead author of the report.
“The volume of foreign direct investment is also likely to grow in India as rebalancing of the global value chain continues.”
Due to a spike in the price of food products like wheat and rice, India’s headline inflation rate increased to 7.8% in July before dropping to 6.8% in August. Additionally, according to projections from the World Bank, fiscal consolidation will continue in 2023–2024 with the central government’s fiscal deficit falling from 6.4% to 5.9% of GDP.
At 83% of GDP, public debt is anticipated to stabilize. On the external front, it is anticipated that the current account deficit would decrease to 1.4% of GDP, and that it will be sufficiently covered by foreign investment flows and supported by sizable foreign reserves.