Robust investment and services to drive growth in coming fiscal, India to grow 6.4% in FY25: World Bank

Indian economy will log 6.4% growth in FY25 and accelerate to 6.5% in FY26, retaining its position as the fastest-growing major economy despite a further global slowdown in 2024 as robust services and investment help support the economy, the World Bank said Tuesday.

“Investment is envisaged to decelerate marginally but remain robust, supported by higher public investment and improved corporate balance sheets, including in the banking sector,” the international institution said in its latest Global Economic Prospects report.

The forecast remains unchanged from June projections, with the World Bank estimating the Indian economy to grow 6.3% this fiscal.

India’s first official estimates released last week pegged growth at 7.3% for the current fiscal—a percentage point higher than the World Bank’s forecast—based on stellar performance achieved in the year's first half. The Reserve Bank of India estimates the Indian economy will grow 7% in FY24.

The first official estimates suggest that even though investment will likely log double-digit growth in FY24, private consumption is expected to slow down to 4.4% from 7.5% in FY23.

The World Bank estimates further easing private consumption in the coming fiscal year.

“Private consumption growth is likely to taper off, as the post-pandemic pent-up demand diminishes and persistent high food price inflation is likely to constrain spending, particularly among low- income households,” it said.

Food inflation rose to 8.7% in October, on account of a vegetable price shock and stickiness in cereals and pulses inflation. Cereal inflation has remained in double digits for 15 consecutive months.

The multilateral institution stated that strong corporate balance sheets are also likely to help push government revenues, but cited interest payments as a cause of concern.

“In India, government revenues are expected to gain from solid corporate profits, and current expenditures are likely to decrease with the conclusion of pandemic-related measures. Interest payments are projected to be large in countries with elevated debt levels, including India, Pakistan, and Sri Lanka,” World Bank said.

The bank also flagged risks emanating from extreme weather events for economies in the South Asian region, including India, especially with the impact on food production. The report mentioned that national elections scheduled in the South Asian region could also pose a risk.

“The heightened uncertainty around these elections could dampen activity in the private sector, including foreign investment,” it said.

However, the World Bank also noted that the implementation of policies to reduce uncertainty and strengthen growth potential after elections could lead to an improvement in growth prospects.

Global slowdown
On the global front, the international institution was gloomier, as it projected growth to slow further to 2.4% in 2024 from 2.6% projected for 2023, highlighting that the world was on course for the weakest half-a-decade performance in 30 years.

“Without a major course correction, the 2020s will go down as a decade of wasted opportunity,” said Indermit Gill, chief economist, World Bank.

It projected that while geopolitical tensions threatened near-term growth, the medium-term outlook had also darkened for many developing economies.

“To tackle climate change and achieve other key global development goals by 2030, developing countries will need to deliver a formidable increase in investment—about $2.4 trillion per year. Without a comprehensive policy package, prospects for such an increase are not bright,” the World Bank said.

The World Bank noted that reforms to boost investment and strengthen fiscal policy could turn the tide.

“Developing economies need to implement comprehensive policy packages to improve fiscal and monetary frameworks, expand cross-border trade and financial flows, improve the investment climate, and strengthen the quality of institutions,” said Ayhan Kose, deputy chief economist, World Bank.

Gung-ho on growth

• India to grow 6.4% and 6.5% in FY24 and FY25
• Services and investment to drive growth
• Global growth to head for a further slowdown in 2024