The World Bank has recently updated its forecast for India’s economic growth for the 2024-25 financial year, now projecting a 7% increase in GDP, up from the previous estimate of 6.6%. This revised forecast is in line with predictions from the International Monetary Fund (IMF) and the Asian Development Bank (ADB), but slightly below the 7.2% growth forecasted by the Reserve Bank of India (RBI) and Fitch Ratings.
Earlier expectations for India’s growth were more cautious due to the strong 8.2% growth last year and concerns about the global economy, which remains weak due to tight monetary policies and ongoing geopolitical tensions. The World Bank anticipates global growth to remain at 2.6%, the same as last year and much lower than pre-pandemic levels.
Despite these global challenges and the end of the initial post-pandemic economic rebound, the World Bank is still optimistic about India’s growth at 7%. However, there are external risks that could impact this, such as supply chain disruptions, rising commodity prices, and inflation. Higher inflation might force central banks to keep interest rates elevated for a longer period, which could affect economic growth.
The World Bank forecasts that private consumption in India will grow by 5.7% and the agricultural sector by 4.1% this year, a notable improvement from last year’s performance. A strong agricultural sector could enhance rural demand, boost private investment, and stabilize industrial growth. The Bank expects India’s GDP growth to be steady at 6.5% to 6.7% in the coming years.
India faces a significant challenge in generating non-farm jobs. While initiatives like the Production Linked Incentive (PLI) schemes and new Employment-Linked Incentives are steps in the right direction, they might not be sufficient to provide enough jobs for India’s large young workforce.
The World Bank also highlighted the need for India to revise its trade strategy. India’s share in global trade is currently below what would be expected given the size of its economy. The Bank noted that India has not fully exploited opportunities like China’s reduction in labour-intensive manufacturing. Additionally, the decline in export-related jobs over the past decade and a shift towards more capital- and skill-intensive exports are concerns.
Although India is making efforts to improve trade through free trade agreements, some, such as the one with the European Free Trade Association (EFTA), have limited impact. The World Bank recommends that India develop a new trade strategy that reduces tariffs, removes trade barriers, and eases restrictions on foreign direct investment (FDI). It also suggests reconsidering India’s reluctance to join larger multilateral trade agreements like the Regional Comprehensive Economic Partnership (RCEP).
In summary, while India’s growth outlook is promising, addressing challenges such as job creation and enhancing its trade role will be crucial for sustained economic success. The World Bank believes that with appropriate policies, India can continue to achieve strong economic growth..
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