World Bank Expects India's GDP Growth At 6.3% In FY24, Country's Economy To Withstand Global Risks

World Bank expects India's gross domestic product (GDP) growth to be at 6.3% for FY24. While the international financial institution expects the central government's fiscal consolidation to continue to decline from 6.4% to 5.9% of GDP. Further, the World Bank also expects the country's service sector activity to remain strong with growth of 7.4% and investment growth is also projected to remain robust at 8.9%.

According to the World Bank's latest India Development Update (IDU), India continues to show resilience against the backdrop of a challenging global environment.

The Bank's flagship half-yearly report, IDU observes that despite significant global challenges, India was one of the fastest-growing major economies in FY22/23 at 7.2%. India's growth rate was the second highest among G20 countries and almost twice the average for emerging market economies.

IDU report said, "This resilience was underpinned by robust domestic demand, strong public infrastructure investment and a strengthening financial sector. 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."

Hence, in this context, the IDU report said, the World Bank forecasts India's GDP growth for FY23/24 to be at 6.3%. The expected moderation is mainly due to challenging external conditions and waning pent-up demand. However, 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%.

Auguste Tano Kouame, World Bank's Country Director in India said, "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."

India's GDP growth came in at 7.8% in the first quarter of FY24. Majority of economists expect GDP growth to be in the range of 6% to 7% for India. RBI projected GDP to grow at 6.5% for the fiscal.

Meanwhile, IDU expects Inflation to decrease gradually as food prices normalize and government measures increase the supply of key commodities.

Dhruv Sharma, Senior Economist, at the World Bank, and lead author of the report said, "While the spike in headline inflation may temporarily constrain consumption, we project a moderation. Overall conditions will remain conducive for private investment," adding, "the volume of foreign direct investment is also likely to grow in India as rebalancing of the global value chain continues."

In terms of fiscal consolidation, the World Bank expects it 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 stabilize 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.

On the global economy, the IDU report said, 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.