Good investment and consumption demand to help India to grow at 6.3 per cent during the current fiscal (2023-24), World Bank said on Tuesday. With this, it has maintained its growth forecast.
World Bank’s forecast is lower than the estimates of the government and the Reserve Bank of India which pegged the country’s growth at 6.5 per cent. However, it is similar to the projections of the Organization for Economic Cooperation and Development (OECD), Fitch Ratings and ADB, while it is higher than S&P Global Ratings’ estimate of 6 per cent.
According to World Bank’s latest India Development Update (IDU), global headwinds will continue to persist and intensify due to high global interest rates, geopolitical tensions, and sluggish global demand.
As a result, global economic growth is also set to slow down over the medium-term.
In view of these factors, the world bank maintained its forecast for FY24 at 6.3 per cent against 7.2 per cent growth in FY23.
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 a growth of 7.4 per cent, while investment growth, too, 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.
He further said that 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.”
According to the World Bank, fiscal consolidation will continue in FY23/24 with the centre’s fiscal deficit is projected to continue to decline from 6.4 per cent to 5.9 per cent of GDP. Public debt is expected to stabilise at 83 per cent of GDP. On the external front, the current account deficit is expected to narrow to 1.4 per cent of GDP, and it will be adequately financed by foreign investment flows and supported by large foreign reserves.
Although India’s post-pandemic economic rebound is now fading, growth is expected to remain stronger than in other large emerging market and developing economies (EMDEs). Output is forecast to grow 6.3 per cent in FY24 and 6.4 per cent in FY25— roughly equal to the estimated pace of India’s potential growth, the World Bank said.
“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.
According to the World Bank, South Asia is expected to grow 5.8 per cent this year—higher than any other developing country region in the world, but slower than its pre-pandemic pace and not fast enough to meet its development goals. Relative to the spring forecast, growth in 2023 has been upgraded by 0.2 percentage points due to stronger-than-expected data in India.
“At a first glance, South Asia is a bright spot in the global economy. The World Bank is forecasting that the region will grow more quickly than any other developing country region over the next few years,” said Martin Raiser, vice president, South Asia Region, World Bank.