BackWorld Bank sees India GDP growth for FY24 at 6.3% as economy shows resilience amid challenging environment
Economy faces challenges from adverse global factors affecting foreign demand and consumption; service sector to remain strong
PremiumThe World Bank kept its economic growth projection for India at 6.3% for FY24, the same as its previous April estimate. However, it attributed the moderation from FY23’s 7.2% growth to adverse global factors affecting foreign demand and consumption growth.
“The expected moderation is mainly due to challenging external conditions and waning pent-up demand. However, service sector activity is expected to remain strong with growth of 7.4%, and investment growth is also projected to remain robust at 8.9%," the World Bank’s latest India Development Update stated.
The forecast is similar to projections by other institutions such as the OECD, Asian Development Bank and Fitch, but slower than the government’s and the Reserve Bank of India’s estimates, which pegged India’s growth at 6.5%. S&P Ratings pegged India’s growth estimates at 6%. During the April-June quarter, India’s economy grew 7.8%, its quickest pace in a year, buoyed by strong services activity and robust demand.
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The World Bank said it expected fiscal consolidation to continue in FY24, with the central government fiscal deficit projected to continue to decline from 6.4% to 5.9% of GDP. World Bank India director Auguste Tano Kouame said that it was not building in a lot of volatility in fiscal policy due to the upcoming general elections as it was not expecting relaxation in the government’s stated fiscal consolidation path. “I see almost zero risks of fiscal slippages overall despite the elections," he said.
Public debt is expected to stabilize at 83% of GDP. The current account deficit is expected to narrow to 1.4% of GDP, and it will be adequately financed by foreign investment flows and supported by large foreign reserves.
Inflation is expected to cool as food prices normalize and government measures increase the supply of key commodities, the report said. India’s retail inflation accelerated to 7.8% in July due to a surge in prices of food items like wheat and rice due to adverse weather conditions.
“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.
He added that India took several measures, including banning exports of some commodities that had cooled food prices in recent months, while noting that headline inflation was likely to average around 5.9% in this financial year because of high food and oil prices, but this would be within the tolerance band of the RBI.
“An adverse global environment will continue to pose challenges in the short term," Kouame said.
Global economic growth is set to slow down over the medium term due to high global interest rates, geopolitical tensions, and sluggish global demand. However, India continued to show resilience amid the challenging global environment, where global headwinds are expected to continue to persist and intensify.
The World Bank’s half-yearly report on the Indian economy, however, said that despite significant global challenges, India was one of the fastest-growing major economies in FY23. At 7.2%, 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. Bank credit growth increased to 15.8% in the first quarter of FY24 compared with 13.3% in the first quarter of FY23.
While India’s post-pandemic economic rebound was fading, the growth is expected to remain stronger than in other large emerging markets and developing economies (EMDEs), the World Bank said, adding that output is estimated to grow 6.3% in FY24 and 6.4% in FY25, roughly equal to the estimated pace of India’s potential growth.
“The dampening effect of monetary policy tightening on domestic demand, particularly investment, will likely peak in the coming year. The effects of slowing global demand and rising interest rates will be mitigated by India’s low external debt and the healthy balance sheets of its financial and corporate sectors," the bank said.
It also revealed its South Asia growth estimates, which it said was expected to grow 5.8% in FY24, faster than any other developing country region in the world but slower than its pre-pandemic pace. Compared to the forecast by the bank earlier this year, growth in 2023 has been upgraded by 0.2 percentage points due to stronger-than-expected data in India.
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