World Bank raises India’s growth forecast to 7% for FY25

The World Bank has raised its growth forecast for India’s economy to 7% for the current financial year (FY25), up from a previous projection of 6.6%, according to a statement released on Tuesday. The revision reflects expectations of stronger economic performance, fuelled by key drivers such as private consumption and investment.

While the World Bank’s report notes that India’s economy remains resilient, achieving the ambitious target of $1 trillion in merchandise exports by 2030 will require strategic diversification and deeper integration into global value chains. The report underscores the need for India to expand its export basket beyond its existing strengths in IT, business services, and pharmaceuticals by focusing on sectors like textiles, apparel, footwear, electronics, and green technology products.

The World Bank expects a gradual increase in private investment and a recovery in consumption, although it identifies job creation as a significant challenge for sustaining economic growth. The report indicates that India’s urban unemployment rate remains high, averaging 17%.

Despite global economic uncertainties, India’s growth prospects continue to show resilience. According to the latest India Development Update (IDU), factors such as improved monsoon conditions and a recovery in private consumption have led to an upward revision in the GDP forecast. The report indicates that India’s share in global apparel exports has declined from 4% in 2018 to 3% in 2022 due to rising production costs and decreasing productivity. The World Bank suggests that deeper integration into global value chains could help create trade-related jobs and foster innovation and productivity growth.

India’s external economic indicators have also shown positive trends. The current account deficit has narrowed, and foreign exchange reserves reached a record high of $670.1 billion in early August, equivalent to over 11 months of import cover. These trends highlight India’s growing economic stability amid a complex global environment.

The World Bank projects a positive medium-term economic outlook for India, with growth expected to reach 7% in FY25 and maintain strength in the coming years. Fiscal consolidation and robust revenue growth are forecasted to reduce the debt-to-GDP ratio from 83.9% in FY24 to 82% by FY27. The current account deficit is anticipated to remain between 1% and 1.6% of GDP through FY27.

The IDU recommends a three-pronged strategy to achieve the $1 trillion merchandise export target by 2030, focusing on reducing trade costs, lowering trade barriers, and deepening trade integration.

The revised forecast aligns with optimism from the International Monetary Fund (IMF), which adjusted its growth projection for India’s GDP for FY25 to 7%, up by 20 basis points. The IMF attributes this upward revision to a boost in private consumption, particularly in rural areas, and maintains its projected 6.5% growth for FY26.

However, data from the National Statistical Office (NSO) show a slight slowdown in GDP growth during the April-June quarter of this year, which decelerated to 6.7% due to reduced government spending ahead of the general elections. This marks a decline from the previous financial year’s expansion, where GDP grew by 8.2%, buoyed by a growth rate of 7.8% in the final quarter of FY24.

The Reserve Bank of India (RBI) has also projected a growth rate of 7.2% for the Indian economy for FY25.

Source: Business Standard