India's GDP to grow 6.3% in FY24, lower than 7.2% of FY23: World Bank

The World Bank forecasts India's GDP to grow 6.3% during the current 2023-24, lower than the 7.2% growth it registered in FY23.

The expected moderation is mainly due to challenging external conditions and waning pent-up demand, the bank says in its latest India Development Update (IDU). The 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% in the current year.

"An adverse global environment will continue to pose challenges in the short-term," says 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 IDU, the bank's flagship half yearly report on the Indian economy, expects India's fiscal consolidation to continue in FY23/24 with the central government fiscal deficit projected to continue to decline from 6.4% to 5.9% of GDP. Public debt is expected to stabilise at 83% of GDP. On the external front, 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, the report said.

It notes that the adverse weather conditions caused headline inflation to rise to 7.8% in July due to a surge in prices of food items like wheat and rice. Inflation is expected to decrease gradually as food prices normalise and government measures increase the supply of key commodities, IDU states.

"While the spike in headline inflation may temporarily constrain consumption, we project a moderation. Overall conditions will remain conducive for private investment," says Dhruv Sharma, senior economist, 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."

The IDU expects that 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 against a background of these combined factors.