Indian economy continues to show high growth and ample amount of resilience despite a very challenging global growth environment. According to World Bank’s latest India Development Update (IDU), despite significant global challenges, India remained one of the fastest-growing major economies in FY22/23 at 7.2%. Its growth rate was the second highest among G20 countries and almost twice the average for emerging market economies. The IDU is the World Bank’s flagship half yearly report on the Indian economy.
The IDU reports on recent developments in India’s economy and places these in a medium-term and global context. Based on these developments and on policy changes over the period, the IDU updates the outlook for India’s economy.
The report observes that this resilience was underpinned by robust domestic demand, strong public infrastructure investment and a strengthening financial sector. During the period, 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.
The multilateral agency expects that 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.
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%.
According to Auguste Tano Kouame, World Bank’s Country Director in India, an adverse global environment will continue to pose challenges in the short-term. He says, “Tapping public spending that crowds in more private investments will create more favorable conditions for India to seize global opportunities in the future and thus achieve higher growth.”
According to the report, in the meantime adverse weather conditions contributed to a spike in inflation in recent months. Headline inflation rose to 7.8% in July due to a surge in prices of food items like wheat and rice. Inflation is expected to decrease gradually as food prices normalize and government measures increase the supply of key commodities.
The World Bank also expects fiscal consolidation 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.