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World Bank Forecasts That Indian Economy Will Grow By 6.3% In FY 2024

Indian Economy

Future Economic Predictions

Oct 25, 2023

According to the World Bank's India Development Update, the Indian economy is expected to expand by 6.3% in the current fiscal year 2023–2024, demonstrating resilience in the face of high inflation and global challenges. Although the Bank's growth projection from its prior update in April has been kept, it is still 20 basis points below than the 6.5% growth prediction for FY24 made by both the government and the Reserve Bank of India (RBI).


India's GDP expanded at its fastest rate in a year during the April–June quarter, 7.8%, thanks to strong services activity and strong demand. For the entire year, Chief Economic Adviser of India V. Anantha expects growth to be 6.5%.


However, noting concerns from the monsoon deficit and its changing influence on pricing, El Nio phenomenon, and global supply chain disruptions, the World Bank increased its inflation projection for FY24 from 5.2 to 5.9 percent in its April update. The Monetary Policy Committee of the RBI, which will start meeting on Wednesday, is anticipated to maintain the repo rate steady because inflation is anticipated to stay stable.


Indian Economy

"We predict a moderation, even though the rise in headline inflation may momentarily restrain spending. According to the report's primary author and senior economist at the World Bank, Dhruv Sharma, overall conditions would continue to be favourable for private investment.


Unfavourable weather conditions have played a role in the recent jump in inflation, with headline inflation increasing to 7.8% in July as a result of an increase in the cost of basic products including wheat and rice. As food prices return to normal and government initiatives boost the supply of essential goods, the Bank predicted that inflation will gradually decline.


The Indian government has implemented a variety of supply-side measures to control inflation, such as a prohibition on the export of non-basmati rice and a 20% levy on the sale of parboiled rice. According to Auguste Kouame, country director for the World Bank, "I think these measures are going to be effective, even though they're not necessarily measures to be recommended in normal times." He further stated that "The Indian economy continues to show strong resilience to external shocks, Notwithstanding external pressures, India’s service exports have continued to increase, and the current-account deficit is narrowing."


Gross Domestic Product (GDP)

High global interest rates, geopolitical unrest, and weak global demand will all contribute to the persistence and amplification of global headwinds. As a result, medium-term global economic growth is expected to decelerate, the report said.

"An unfavourable global environment will continue to present challenges in the short term, but increasing public spending will attract more private investment and improve India's ability to take advantage of future global opportunities and achieve higher growth," Auguste Tano Kouamé added.


According to the World Bank India, India's fiscal deficit target of 5.9% of GDP in this fiscal year may "surprise on the upside" due to increased revenue mobilisation and robust Goods and Services Tax (GST) revenues.


When asked if a fiscal impact could be seen due to the elections, Kouamé said he sees “almost zero risk” of fiscal slippages and the Indian government is moving in the right direction with respect to the fiscal deficit target. “We are not building into our forecasts a lot of volatility in fiscal policy due to the elections. We are not envisaging a relaxation of the government’s stated fiscal consolidation path states have to maintain their fiscal deficit at less than 3 per cent. These dole outs, if they happen, will happen at the state level. And the fact that states have to maintain their deficit below 3 per cent (of the GSDP), will constrain those risks. So, personally, I see almost zero risk of fiscal slippages overall in India this time due to the elections,” he said.


World Bank

The central government's fiscal deficit is anticipated to continue decreasing in FY24, from 6.4% of GDP in the previous fiscal year to 5.9%. The Bank anticipates that fiscal consolidation will continue. According to the report, public debt is predicted to stabilise at 83 percent of GDP. According to the report, the current account deficit on the international front is predicted to decrease to 1.4% of GDP and will be adequately financed by foreign investment flows and supported by sizable foreign reserves.


“Our estimate for this year is consistent with the government’s estimate. What may well happen, is that going forward with growth dynamics, with buoyancy of GST – which, by the way, is doing very well – with revenue mobilisation, maybe there will be a surprise on the upside. And in any case, the government is really determined to contain (its own) consumption while pushing for investment,” Kouamé said.


For India to become a high-income country, it needs to grow closer to 8 per cent and one of the critical aspects required would be a higher female labour force participation rate, the World Bank said. The average level of female labour force participation rate for emerging market economies is around 50 per cent and it is 25 per cent for India, Kouamé said, adding “there is room for India to do even better”.


Indian Economy

According to the World Bank, jobs for women and those in rural areas continue to lag behind jobs for men. In Q4 FY23 compared to Q4 FY22, the urban worker population ratio (WPR) increased by 1.4 and 2.3 percentage points for males and females, respectively. However, the rise in WPR for women is primarily the result of a rise in the proportion of women engaged in unpaid work, which the report put at 11.7%, up 1.5 percentage points from Q4 FY22.


“At a headline level, it is about increasing jobs overall. The quantity of jobs is also important as well as the quality. India has aspirations to become a high-income country by 2047, which will naturally require a faster pace of growth. It’s growing at 6-6.5 per cent now. In order to become a high income country it needs to grow closer to 8 per cent. And you can’t get there if a large part of your workforce — females — are not participating. For India to go from 6 per cent to 8 per cent, and become a high-income country, you need to get the female participation rate higher,” Sharma said.


Continuing his analysis, Sharma concluded that, “We do have a moderating trajectory when it comes to investment growth. But what’s important to know is that investment growth is actually higher than its average over the last several years. So, it’s actually moderating down back to its longer-term average and is still a major driver of growth".


As an ordinary citizen, it will be a wait and watch situation to see how true the predictions are and how would they impact us as a consumer.

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