The World Bank on Tuesday raised India’s Gross Domestic Product (GDP) growth forecast for India to 7% from 6.6% earlier this year, in line with the economic forecast by the Reserve Bank of India(RBI).
The World Bank says the Indian economy continues to grow at a “healthy pace” despite challenging global conditions, and India’s medium-term outlook remains “positive”.
According to the World Bank, India’s economy could also post "strong" growth in FY25/26 and FY26/27 as well. “With robust revenue growth and further fiscal consolidation, the debt-to-GDP ratio is projected to decline from 83.9% in FY23/24 to 82% by FY26/27. The current account deficit is expected to remain 1-1.6% of GDP up to FY26/27.”
The World Bank’s latest India development update (IDU), however, underscores the need for India to diversify its "export basket" and leverage global value chains if it aims to achieve a $1 trillion merchandise exports goal by 2030.
India was the fastest-growing major economy and grew at a rapid clip of 8.2% in FY23/24, thanks to growth boosted by public infrastructure investment and an upswing in household investments in real estate. On the supply side, India was supported by a buoyant manufacturing sector, which grew by 9.9%, and resilient services activity, which compensated for underperformance in agriculture, the World Bank report adds.
“Reflecting these trends, urban unemployment has improved gradually since the pandemic, especially for female workers. Female urban unemployment fell to 8.5% in early FY24/25, though urban youth unemployment remained elevated at 17%.”
The World Bank highlights the critical role of trade in boosting growth. “The global trade landscape has witnessed increased protectionism in recent years. The post-pandemic reconfiguration of global value chains, triggered by the pandemic, has created opportunities for India,” it says.
It says India has boosted its competitiveness through the National Logistics Policy and digital initiatives that are reducing trade costs. However, it notes tariff and non-tariff barriers have increased and could limit the potential for trade-focused investments.
“India’s robust growth prospects, along with declining inflation, will help to reduce extreme poverty,” said Auguste Tano Kouame, World Bank's Country Director in India. “India can boost its growth further by harnessing its global trade potential. In addition to IT, business services and pharma where it excels, India can diversify its export basket with increased exports in textiles, apparel, and footwear sectors, as well as electronics and green technology products.”
The World Bank has called for a three-pronged approach towards achieving the $1 trillion merchandise export target – by reducing trade costs further, lowering trade barriers, and deepening trade integration. “With rising costs of production and declining productivity, India’s share in global apparel exports has declined from 4% in 2018 to 3% in 2022,” said Nora Dihel and Ran Li, senior economists, and co-authors. “To create more trade-related jobs, India can Integrate more deeply into global value chains which will also create opportunities for innovation and productivity growth.”
Notably, the RBI's forecast for the country's economic growth for FY25 remains at 7.2%.
