NEW DELHI: Indian economy will likely pick up pace in FY25 and FY26, growing 6.4% and 6.5%, respectively, on the back of a strong investment and services push, retaining the fastest-growing major economy tag, the World Bank said Tuesday.
The multilateral institution has forecast global growth to slump further to 2.4% in 2024 from 2.6% in 2023 and rise slightly to 2.7% in 2025. “Investment is envisaged to decelerate marginally but remain robust, supported by higher public investment and improved corporate balance sheets, including in the banking sector,” the international institution said in its latest Global Economic Prospects report.
The bank’s outlook remained unchanged from the June projections when it had estimated the Indian economy to grow 6.3% in FY24. India’s first official estimates released last week pegged growth at 7.3% for the current fiscal—a percentage point higher than the World Bank’s forecast—based on stellar performance achieved in the year’s first half. The Reserve Bank of India estimates the economy will grow 7% in FY24. The first official estimates suggest that even though investment will likely log double-digit growth in FY24, private consumption is expected to slow down to 4.4% from 7.5% in FY23.
The World Bank estimates further easing private consumption in the coming fiscal year.
“Private consumption growth is likely to taper off, as the post-pandemic pent-up demand diminishes and persistent high food price inflation is likely to constrain spending, particularly among low-income households,” it said.
Food inflation rose to 8.7% in October on account of a vegetable price shock and stickiness in cereals and pulses inflation. Cereal inflation has remained in double digits for 15 consecutive months.
The multilateral institution stated that strong corporate balance sheets are also likely to help push government revenues but cited interest payments as a cause of concern. “In India, government revenues are expected to gain from solid corporate profits, and current expenditures will likely decrease with the conclusion of pandemic-related measures. Interest payments are projected to be large in countries with elevated debt levels, including India, Pakistan and Sri Lanka,” the World Bank said.
The bank also flagged risks from extreme weather events for economies in the South Asian region, including India, especially with the impact on food production. The report mentioned that national elections in the South Asian region in 2024 could also pose a risk. “The heightened uncertainty around these elections could dampen activity in the private sector, including foreign investment,” it said.
However, the World Bank also noted that the implementation of policies to reduce uncertainty and strengthen growth potential after elections could lead to an improvement in growth prospects.
On the global front, the international institution was gloomier, projecting growth to slow for a third year in a row. “Without a major course correction, the 2020s will go down as a decade of wasted opportunity,” said Indermit Gill, chief economist, World Bank
The bank projected that while geopolitical tensions threatened near-term growth, the medium-term outlook had also darkened for many developing economies.
“To tackle climate change and achieve other key global development goals by 2030, developing countries will need to deliver a formidable increase in investment—about $2.4 trillion per year. Without a comprehensive policy package, prospects for such an increase are not bright,” the World Bank said.
Source: The Economic Times
