World Bank raises India’s growth forecast for FY25 to 7 percent

The World Bank on Tuesday upgraded India’s growth forecast for the FY24/25 to seven percent, giving a boost to the country’s financial journey.

The Indian economy continues to grow at a healthy pace despite challenging global conditions, according to the World Bank’s latest report on India.

“But to reach its $1 trillion merchandise exports goal by 2030, India needs to diversify its export basket and leverage global value chains,” World Bank said in a statement.

The India Development Update (IDU) observes that India remained the fastest-growing major economy and grew at a rapid clip of 8.2 percent in FY23/24.

Growth was boosted by public infrastructure investment and an upswing in household investments in real estate. On the supply side, it was supported by a buoyant manufacturing sector, which grew by 9.9 percent, and resilient services activity, which compensated for underperformance in agriculture.

Reflecting these trends, urban unemployment has improved gradually since the pandemic, especially for female workers.

Female urban unemployment fell to 8.5 percent in early FY24/25, although urban youth unemployment remained elevated at 17 percent.

With a narrowing of the current account deficit and strong foreign portfolio investment inflows, foreign exchange reserves reached an all-time high of $670.1 billion in early August, equivalent to over 11 months oft cover (in FY23/24 import terms).

Amid challenging external conditions, the World Bank expects India’s medium-term outlook to remain positive. Growth is forecast to reach 7 percent in FY24/25 and remain strong in FY25/26 and FY26/27.

With robust revenue growth and further fiscal consolidation, the debt-to-GDP ratio is projected to decline from 83.9 percent in FY23/24 to 82 percent by FY26/27. The current account deficit is expected to remain at around 1-1.6 percent of GDP up to FY26/27.

“India’s robust growth prospects along with declining inflation will help to reduce extreme poverty,” said Auguste Tano Kouame, World Bank’s Country Director in India.
“India can boost its growth further by harnessing its global trade potential. In addition to IT, business services and pharma where it excels, India can diversify its export basket with increased exports in textiles, apparel, and footwear sectors, as well as electronics and green technology products.”

The IDU recommends a three-pronged approach towards achieving the $1 trillion merchandise export target by reducing trade costs further, lowering trade barriers, and deepening trade integration.

“With rising costs of production and declining productivity, India’s share in global apparel exports has declined from 4 percent in 2018 to 3 percent in 2022,” said Nora Dihel and Ran Li, Senior Economists, co-authors of the report. “To create more trade-related jobs, India can Integrate more deeply into global value chains which will also create opportunities for innovation and productivity growth.”