World Bank raises India's GDP growth forecast for FY25 to 6.6%

The World Bank on Wednesday raised India’s gross domestic product (GDP) growth forecast by 20 basis points to 6.6% for the financial year 2024-25.

India's output growth is expected to reach 7.5% in FY24 before returning to 6.6% over the medium term, with activity in services and industry expected to remain robust, the global financial institution says.

"South Asia's growth prospects remain bright in the short run, but fragile fiscal positions and increasing climate shocks are dark clouds on the horizon," says Martin Raiser, World Bank vice president for South Asia. "To make growth more resilient, countries need to adopt policies to boost private investment and strengthen employment growth."

Growth in South Asia is expected to be strong at 6% in 2024, driven mainly by robust growth in India and recoveries in Pakistan and Sri Lanka, the World Bank says.

"South Asia is failing right now to fully capitalize on its demographic dividend. This is a missed opportunity," says Franziska Ohnsorge, World Bank Chief Economist for South Asia. "If the region employed as large a share of the working-age population as other emerging markets and developing economies, its output could be 16% higher."

World Bank's revised GDP projection for India comes a week after Morgan Stanley lifted India’s GDP growth forecast for the financial year 2024-25 by 30 basis points to 6.8%, aided by continued traction in industrial and capex activity. The research firm expects 7.9% GDP growth in FY24. The brokerage expects growth to be broad-based and the gaps between rural-urban consumption and private-public capex to narrow in FY25. “Domestic demand growth has been steadfast and is a key driver of our constructive outlook for the economy. Consumption accounts for 60.3% of GDP and is the mainstay of the domestic demand story,” said Morgan Stanley.

On the fiscal side, Morgan Stanley expects slow-paced fiscal consolidation with the deficit to narrow to 7.9% of GDP in FY25 from 8.9% of GDP in FY24. “We expect the consolidation to be supported by an increase in tax revenues and rationalisation of revenue spending, even as capex spending remains robust,” it said.  The key risk in the near term stems from upcoming general elections, it said. “While we assume a stable political environment to provide an anchor for effective policy-making, the key risk to India's growth outlook could stem from an unstable political environment, which could increase policy uncertainty,” it added.

Last month, S&P Global also raised India's GDP forecast for financial year 2024-25 by 40 basis points to 6.8%. It expects the country to report 7.6% GDP growth in FY24.