World Bank raises India’s GDP growth forecast for FY25 to 7% from 6.6%
The World Bank has revised down India’s growth forecast for fiscal year 2025 to 7 percent from 6.6 percent in its latest India Development Update, released on Tuesday.
“Growth was driven by public infrastructure investment and a rebound in household investment in real estate. On the supply side, it was supported by a buoyant manufacturing sector, which expanded by 9.9 percent, and resilient services activity, which offset a disappointing performance in agriculture,” the World Bank report said.
Auguste Kouame, World Bank Country Director for India, said India is becoming more dynamic than ever in a challenging environment and the country is not at risk of falling into the middle-income country trap if it continues with its policies and reforms.
“India has been successful despite setbacks. I don’t see growth slowing to the point where it stalls,” Kouame said.
India grew by 8.2 percent in fiscal 2024, becoming the fastest-growing major economy in the world.
Recently, the International Monetary Fund (IMF) has raised India’s gross domestic product (GDP) growth forecast for the current fiscal year to 7 percent. Moody’s Ratings has also raised India’s GDP growth forecast for calendar year 2024 to 7.2 percent from 6.8 percent.
The World Bank expects India’s medium-term outlook to remain positive, with GDP growth expected to be 6.7 percent for FY26 and FY27.
The World Bank report found that while the urban labor market has gradually improved since the peak of the pandemic, youth unemployment remains high, at around 17 percent.
On the steps announced in the budget to tackle unemployment, Kouame said while they were good decisions, there were other things that needed to be done.
He said India may get more growth from exports, but fewer jobs will be created, for example by increasing the country’s share of high-tech exports.
“Is it just a policy or a structural problem? … India should try to capture less advanced, lower markets with goods that can create more jobs. China was not just trying to export to the US, but to the whole world,” Kouame said.
On the production-linked stimulus scheme, World Bank economist Aurelien Kruse said the intention of the scheme was good, but there is a limit to how much a government scheme can work given the size of the Indian economy. “To achieve scale and systemic change, you have to go to the root of the problem,” he said.
The World Bank report forecasts inflation (consumer price index) of 4.5 percent for FY 2025, falling to 4.1 percent and 4 percent in FY 2026 and 2027, respectively.
“Monetary policy should target both core inflation and headline inflation,” Kruse added.
First publication: 03 Sep 2024 | 15:57 IST