World Bank sees India’s growth in FY24 at 7.5%

India’s gross domestic product (GDP) expanded by 8.4% in the October-to-December quarter (Q3), beating analysts’ estimates by a wide margin.

In its South Asia Development Update, the World Bank has forecast an overall 6% growth in the region in 2024, citing robust growth of the Indian economy and recovery in the balance of payment challenges for Pakistan and Sri Lanka.

The report indicates that South Asia will remain the world’s fastest-growing region for the next two years with a projected growth rate of 6.1% in 2025.

On inflation front, the report said inflation has remained within the Reserve Bank of India’s 2–6% target range since a spike in mid-2023, and the policy rate has remained unchanged since February 2023.

Food price inflation has been elevated, partly reflecting a weak harvest due to El Niño, it added.

In India, financial conditions have remained accommodative.

“Domestic credit issuance to the commercial sector (including public and private borrowers) grew by 14% (year-on-year) in December 2023, the fastest pace since 2013,” the report said.

Financial soundness indicators continued to improve. The nonperforming-loan ratio fell to 3.2% last year, well below its recent peak of  about 11% in March 2018. 

Regulatory capital totaled 17% of bank assets in the second quarter of 2023, surpassing both regulatory requirements and peer averages. 

“FDI as a share of GDP fell in 2023, but a rebound in foreign portfolio investment inflows in FY 2023-24 contributed to foreign reserves rising 8% in the year to January 2024, reaching a level sufficient to cover about 11 months of imports,” the report said.

India’s Manufacturing activity in March rose to a 16-year high as companies stepped up hiring amid robust production and increasing new orders.

The seasonally adjusted index climbed to 59.1 in March, up from 56.9 in February.

“The expected slowdown in growth between FY 2023-24 and FY 2024-25 mainly reflects a deceleration in investment from its elevated pace in the previous year,” the world bank report said.

Growth in services and industry is expected to remain robust, the latter aided by strong construction and real estate activity. 

Inflationary pressures are expected to subside, creating more policy space for easing financial conditions. 

Over the medium term, the fiscal deficit and government debt are projected to decline, supported by robust output growth and consolidation efforts by the central government.

“In India, government revenues are expected to increase on the back of continued efforts to broaden the tax base and improve tax administration, and current expenditures are likely to decrease as pandemic-related measures are wound down,” the world bank report further said.