World Bank Projects India To Grow By 6.7% On Average Between 2024-2026; Retains GDP Est For FY25

The World Bank has reaffirmed its GDP growth projection for India at 6.6% for the fiscal year 2024-25, maintaining the outlook it had previously adjusted in April. This reiteration reflects India's position as the fastest-growing major economy globally, despite a projected moderation in its expansion pace.

The revised projection in April had marked an upward adjustment by 20 basis points, reflecting the World Bank's confidence in India's economic resilience. According to the World Bank's latest Global Economic Prospects report released in June 2024, India is expected to sustain an average growth rate of 6.7% over the next three fiscal years, beginning from 2024-25. This forecast extends to 6.7% in FY26 and further to 6.8% in FY27, indicating a steady growth trajectory.

India's GDP growth for the January-March quarter of 2023-24 stood at 7.8%, surpassing many expectations, though slightly down from the 8.4% observed in the previous quarter. The full-year growth for 2023-24 has been revised upwards to 8.2%, significantly higher than the earlier estimate of 7.6%. This robust performance, as reported by the Ministry of Statistics and Programme Implementation on May 31, 2024, has bolstered confidence in the country's economic fundamentals.

In comparison, the Reserve Bank of India (RBI) projects the country's GDP growth at 7.2% for FY25, reflecting a slightly more conservative outlook than that of the World Bank.

The global economic landscape presents a mixed picture. The World Bank forecasts global GDP growth to stabilize at 2.6% for 2024-25, a slight improvement of 20 basis points from January's estimate. The growth is expected to marginally increase to 2.7% in 2025-26. These projections come despite ongoing geopolitical tensions and high interest rates, suggesting a period of stabilization after several tumultuous years.

For South Asia, including India, the regional GDP growth is anticipated to decelerate to 6.2% in 2024 from 6.6% in 2023, largely due to a moderation in India's growth from a high base. Nonetheless, the region's growth is expected to remain steady at 6.2% in 2025-26, driven by continued expansion in India and robust, albeit slower, growth in Bangladesh. Economic strengthening is also anticipated in Pakistan and Sri Lanka, although the overall outlook remains susceptible to various downside risks.

The World Bank identifies several potential risks that could impact these projections. These include disruptions in commodity markets due to escalating conflicts, abrupt fiscal consolidations, financial instability from significant bank exposures to sovereign borrowers, and extreme weather events. Furthermore, slower-than-expected growth in major economies like China and Europe could dampen global economic prospects.

Conversely, there are upside risks that could lead to a more favourable outcome. Stronger-than-anticipated economic activity in the United States and a faster pace of global disinflation could positively influence global growth. The World Bank now predicts the US economy will grow by 2.5% in 2024, maintaining the same rate as 2023 but significantly higher than the previously estimated 1.6%.

Global inflation is projected to moderate gradually, averaging 3.5% in 2024. However, inflationary pressures are expected to persist, prompting central banks in both advanced and emerging markets to exercise caution in easing monetary policies. As a result, benchmark policy interest rates are likely to remain approximately double the average observed between 2000 and 2019 over the next few years.

The World Bank's report also highlights concerns about trade fragmentation and its potential to disrupt global trade networks. Trade policy uncertainty has reached exceptionally high levels, posing additional challenges to global economic stability. Escalating geopolitical tensions and volatile commodity prices could further exacerbate these issues.

On the other hand, quicker-than-expected disinflation and stronger growth in major economies like the United States could provide some relief, allowing for a more positive economic outlook.

India's sustained economic growth amidst global uncertainties reflects its robust economic foundations and potential as a key driver of global economic recovery. The World Bank's steady projection of 6.6% GDP growth for FY25 and the anticipated average growth rate of 6.7% over the next three fiscal years reflect optimism about the country's economic trajectory.