The World Bank on Tuesday retained India’s growth forecast at 6.3% for the year 2023-24 saying the expected moderation was due to challenging external conditions and waning pent-up demand.
The World Bank had in April too projected 6.3% GDP growth for 2023-24.
India recorded 7.2% growth in 2022-23. According to the RBI’s latest forecast, the economy would grow at 6.5% in 2023-24.
In its latest India Development Update (IDU), the bank said that the expected moderation was mainly due to challenging external conditions and waning pent-up demand. However, service sector activity was expected to remain strong with a growth of 7.4% and investment growth was also projected to remain robust at 8.9%.
The IDU, which is the Bank’s flagship report on the Indian economy, noted that despite significant global challenges, India was one of the fastest-growing major economies in 2022-23 at 7.2%. India’s growth rate was the second-highest among G20 countries and almost twice the average for emerging market economies.
India continues to show resilience against the backdrop of a challenging global environment, it said.
The report said that inflation was expected to decrease gradually as food prices normalize and government measures to increase the supply of key commodities kick in.
Headline inflation remained within range barring an uptick in July driven by food prices. “While the spike in headline inflation may temporarily constrain consumption, we project a moderation. Overall conditions will remain conducive for private investment,” said Dhruv Sharma, Senior Economist, World Bank, and lead author of the report.
As far as the labour market was concerned, the report said that there were continued improvements and unemployment rates declined significantly for men and youth. The increase in women’s worker population ratio was, however, driven by unpaid family work.
According to the World Bank’s Country Director in India Auguste Tano Kouame, for India to become a high-income country, one of the critical aspects required would be a higher female labour force participation rate.
The average level of female labour force participation rate for emerging market economies is around 50% and it is 25% for India, he said.
The report observed that global headwinds will continue to persist and intensify due to high global interest rates, geopolitical tensions, and sluggish global demand and, as a result, global economic growth is also set to slow down over the medium term.
“An adverse global environment will continue to pose challenges in the short-term,” Mr. Tano Kouame, World Bank’s Country Director in India said. “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.”
“The volume of foreign direct investment is also likely to grow in India as rebalancing of the global value chain continues.”
The Bank said that it expected fiscal consolidation to continue in the current year with the central government’s fiscal deficit projected to continue to decline from 6.4% to 5.9% of GDP. As far the external front was concerned, the current account deficit was expected to narrow to 1.4% of GDP, and will be adequately financed by foreign investment flows and supported by large foreign reserves.
