New Delhi
In a significant boost to India's economic trajectory, the World Bank has upgraded its growth forecast for the financial year 2024-25 to 7 per cent, up from its earlier estimate of 6.6 per cent. This revision reflects the country's impressive economic performance, which has positioned India as the fastest-growing major economy globally.
Strong economic foundations
The Indian economy's robust growth is attributed to several key factors. In the financial year 2023-24, India achieved an impressive 8.2 per cent growth rate, driven by substantial public infrastructure investments and a surge in household real estate investments. The manufacturing sector played a crucial role, growing by 9.9 per cent, while resilient services activity helped offset the underperformance in the agriculture sector.
"India was the fastest-growing major economy in FY24 at 8.2 per cent, and now it's growing at a good pace," noted Auguste Tano Kouame, the World Bank's Country Director for India. This growth momentum is expected to continue, with the World Bank projecting strong growth for FY26 and FY27 at 6.7 per cent and 6.8 per cent, respectively.
Further, the medium-term outlook for India remains positive, despite global growth remaining subdued compared to pre-pandemic levels. The report highlights that sustained growth in the services sector, including the expansion of Global Capability Centers, and an expected strengthening of the manufacturing sector, will continue to drive economic expansion. Government initiatives such as the PM Gati Shakti master plan to enhance logistics infrastructure and the trade infrastructure for exports scheme are also expected to contribute significantly.
One of the most promising aspects of India's economic growth is the decline in inflation. Headline inflation is expected to continue to decline from an average of 5.4 per cent in FY23-24 to 4.5 per cent in FY24-25. This decline, coupled with robust growth, is anticipated to reduce extreme and moderate poverty in the country.
"India's robust growth prospects along with declining inflation will help to reduce extreme poverty," said Auguste Tano Kouame. He also emphasized the importance of diversifying India's export basket to include sectors such as textiles, apparel, footwear, electronics, and green technology to harness its global trade potential.
Fiscal consolidation and trade opportunities
The World Bank report also underscores the importance of fiscal consolidation. With robust revenue growth and further fiscal consolidation, the debt-to-GDP ratio is projected to decline from 83.9 per cent in FY24 to 82 per cent by FY27. The current account deficit is expected to remain within the range of 1-1.6 per cent of GDP up to FY27.
India's trade potential is another critical area highlighted in the report. The World Bank suggests that India can boost its growth further by integrating more deeply into global value chains, which will create opportunities for innovation and productivity growth. Reducing trade costs, lowering trade barriers, and deepening trade integration are recommended strategies to achieve the $1 trillion merchandise export target by 2030.
While the outlook is positive, the report also acknowledges external risks such as geopolitical tensions and resurgent inflation, which could impact commodity prices and global interest rates. However, these risks are seen as manageable given India's strong economic fundamentals.