India to Maintain Position as World’s Fastest-Growing Major Economy: World Bank

The World Bank has projected that India will continue to be the world’s fastest-growing major economy, despite a slight slowdown in growth. The June 11 ‘Global Economic Prospects’ report maintained India’s GDP growth forecast at 6.6% for FY25. This moderation is attributed to a slowdown in investment from a high base. However, investment growth remains robust, driven by strong public and private investment.

In April, the World Bank increased its GDP growth projection for India by 20 basis points to 6.6% for the current fiscal year. The World Bank expects an average growth rate of 6.7% over the three fiscal years starting from FY25, with projections of 6.7% in FY26 and 6.8% in FY27.

Recent Economic Performance

India’s GDP growth for the January-March quarter of FY24 surpassed expectations, reaching 7.8%, down from 8.4% in the previous quarter. For the entire fiscal year 2023-24, GDP growth has been revised upwards to 8.2% from the second advance estimate of 7.6%, according to data released by the Ministry of Statistics and Programme Implementation on May 31.

The Reserve Bank of India recently forecasted GDP growth at 7.2% for FY25, an increase from the earlier projection of 7%.

Global Economic Outlook

The World Bank’s latest Global Economic Prospects report indicates that for the first time in three years, the global economy shows signs of stabilisation in 2024. However, this stabilisation is relatively weak by historical standards. Global GDP growth is now anticipated to be 2.6% for 2024-25, a 20 basis point increase from the January estimate. For FY26 and FY27, global growth is expected to be 2.7% amid modest trade and investment growth.

The report suggests that countries representing over 80% of the world’s population and GDP will experience slower growth compared to the pre-pandemic decade over the next three years.

India’s Economic Trajectory

India, the largest economy in South Asia, has significantly contributed to regional growth, particularly through its manufacturing and services sectors. The country’s growth rate for FY24 is estimated at 8.2%, a notable increase of 1.9 percentage points from earlier projections. India’s economic growth is driven by its industrial and services sectors, offsetting a slowdown in agricultural production caused by monsoon disruptions. Domestic demand remains strong, buoyed by infrastructure investments, even as post-pandemic pent-up consumption demand eases.

Inflation in India has remained within the Reserve Bank’s target range of 2-6% since September 2023, contributing to a stable economic environment. However, in other parts of the region, inflation remains elevated due to high food prices and increased energy costs.

Fiscal and Trade Balances

The fiscal health of South Asian countries is gradually improving. In India, the fiscal deficit relative to GDP is projected to decrease due to increased revenues from a broadened tax base. Regional fiscal imbalances are expected to improve, albeit on a smaller scale outside India. Trade deficits are narrowing, particularly in India, contributing to overall economic stability in South Asia.

Growth Outlook in Other South Asian Economies

In South Asia, GDP growth is projected to decrease from 6.6% in 2023 to 6.2% in 2024, largely due to a slowdown in India’s growth rates. However, steady growth in India is expected to keep the region’s growth rate at 6.2% in 2025-26. Other economies in the region, such as Bangladesh, are expected to maintain robust growth, though at a slower pace. Growth in Pakistan and Sri Lanka is anticipated to strengthen despite challenges such as weak private sector activity in Pakistan and industrial disruptions in Bangladesh due to import restrictions.

Challenges and Outlook

Per capita income growth in South Asia is expected to decrease from 5.6% in 2023 to 5.1% in 2024-25, then slightly rise to 5.2% in 2026. This slower pace of poverty reduction is due to weaker-than-expected growth in private consumption and fiscal adjustments that may reduce household income.

Globally, the World Bank projects inflation to moderate but more slowly than previously expected, averaging 3.5% this year. Ongoing inflationary pressures mean that central banks in advanced and emerging markets are likely to remain cautious about easing monetary policy. As a result, average benchmark policy interest rates are expected to stay about double the 2000-19 average over the next few years.

Potential Downside Risks

Despite improved near-term prospects, the global economic outlook remains subdued by historical standards. Downside risks include geopolitical tensions, trade fragmentation, higher-for-longer interest rates, and climate-related disasters. The World Bank emphasises that global cooperation is essential to safeguard trade, support green and digital transitions, deliver debt relief, and improve food security.

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