‘Resilient despite challenges’: World Bank retains India’s FY24 GDP growth forecast at 6.3%

The World Bank expects India’s GDP growth for FY23-24 to be at 6.3%, retaining its GDP estimate since its June forecast citing India continues to show "resilience" against the backdrop of a challenging global environment.

The Washington, DC-based global institution says "moderation" is mainly due to "challenging external conditions" and "waning pent-up demand". However, the service sector activity is expected to remain strong, with growth of 7.4% and investment growth is also projected to be robust at 8.9%.

In its June update, too, the World Bank had said India will remain the "fastest-growing economy" in FY24.

The World Bank’s latest India Development Update (IDU), its flagship half-yearly report on the Indian economy, says India was one of the fastest-growing major economies in FY22/23 at 7.2% despite challenges. Its growth rate was the second highest among G20 countries and almost twice the average for emerging market economies.

The World Bank has attributed the resilience to "robust domestic demand, strong public infrastructure investment, and a strengthening financial sector".

India's "bank credit growth" increased to 15.8% in the first quarter of FY23/24 compared with 13.3% in the first quarter of FY22/23, says the World Bank.

The World Bank expects global headwinds to persist and intensify due to high global interest rates, geopolitical tensions, and sluggish global demand. As a result, says the World Bank, global economic growth is also set to slow down over the medium term against a background of these combined factors.

“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 favorable conditions for India to seize global opportunities in the future and thus achieve higher growth.”

On inflation, the World Bank says the spike in headline inflation in India was caused by adverse weather conditions. Headline inflation rose to 7.8% in July due to a surge in food items like wheat and rice prices. In the near future, inflation is expected to decrease gradually as food prices normalise and government measures increase the supply of critical commodities.

“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.

The World Bank also expects 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.

Among other global institutions, US-based global ratings agency S&P Global Ratings last month retained India's growth forecast in the financial year 2023-24 at 6%. India's finance ministry also said the country's GDP growth outlook for the financial year 2023-24 remains "bright" and the economy could grow at 6.5% in the fiscal year. The Paris-based Organisation for Economic Cooperation and Development (OECD) raised India’s GDP forecast for 2023-24 to 6.3% from 6% projected earlier.