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India remains world's fastest growing major economy globally: World Bank

The global economic report of the World Bank noted that in the South Asian region, India is set to sustain its robust growth momentum although it will moderate in coming years

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Abhijeet Kumar New Delhi
The World Bank on Tuesday (June 11) predicted that India is set to remain the fastest-growing major economy globally, though its growth rate is expected to slow. The June ‘Global Economic Prospects’ report maintained the GDP growth forecast for India at 6.6 per cent for FY25. 

“This moderation is mainly due to a slowdown in investment from a high base. However, investment growth is still expected to be stronger than previously envisaged and remain robust over the forecast period, with strong public investment accompanied by private investment,” the report said.

In April, the global agency increased its projection for India’s GDP growth by 20 basis points to 6.6 per cent for the current financial year.
 

After a robust performance in FY24, the World Bank projected an average growth rate of 6.7 per cent (6.7 per cent in FY26 and 6.8 per cent in FY27) annually over the three fiscal years starting from FY25, as outlined in its Global Economic Prospects for June 2024.

In the January-March quarter, India's GDP growth surpassed expectations, reaching 7.8 per cent, although this was a decline from 8.4 per cent in the third quarter. For the entire fiscal year 2023-24, GDP growth has been revised upwards to 8.2 per cent from the second advance estimate of 7.6 per cent, according to the Ministry of Statistics and Programme Implementation data released on May 31.

The Reserve Bank of India, in its recent Monetary Policy announcement forecasted GDP growth at 7.2 per cent for FY25, an increase from the earlier projection of 7 per cent.

Key highlights of the World Bank’s June economic forecast report

Global growth outlook


According to the World Bank’s latest Global Economic Prospects report, for the first time in three years, the global economy is showing signs of stabilisation in 2024. However, this stabilisation remains weak compared to historical standards.

Globally, GDP growth is now anticipated to be 2.6 per cent for 2024-25, a 20 basis point increase from the January estimate. For FY26 and FY27, global growth is expected to be 2.7 per cent amid modest growth in trade and investment.

Over the next three years, the forecast suggests that countries representing over 80 per cent of the world’s population and GDP will experience slower growth compared to the pre-pandemic decade.

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 World Bank report noted. The country’s growth rate for FY24 is estimated at 8.2 per cent, a notable increase of 1.9 percentage points from earlier projections, the report said. 

India’s economic growth has been driven by its industrial and services sectors, which have offset 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, the World Bank report noted. Inflation in India has remained within the Reserve Bank’s target range of 2-6 per cent since September 2023, contributing to a stable economic environment, the report added.

However, in other parts of the region, inflation remains elevated, driven by persistently high food prices due to local supply disruptions and increased energy costs. In Pakistan, inflation has moderated over the past year due to high base effects and exchange rate stabilisation. Yet, it remains high.

Fiscal and trade balances


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

Growth outlook in other South Asian economies


In the South Asia region, GDP growth is projected to decrease from 6.6 per cent in 2023 to 6.2 per cent in 2024, largely due to a slowdown in India from its high growth rates in recent years. 

However, steady growth in India is expected to keep the region’s growth rate at 6.2 per cent in 2025-26, the World Bank noted. Other economies in the region, such as Bangladesh, are expected to maintain robust growth, though at a slower pace, while growth in Pakistan and Sri Lanka is anticipated to strengthen. 

Pakistan and Sri Lanka are expected to see strengthened economic activities, despite facing challenges such as weak private sector activity in Pakistan and industrial disruptions in Bangladesh due to import restrictions, it noted. Nonetheless, the World Bank notes that risks to this outlook are tilted to the downside.

These downside risks include disruptions in commodity markets due to escalating conflicts, abrupt fiscal consolidations, financial instability from banks’ large exposure to sovereign borrowers, more frequent severe weather events, and slower-than-expected growth in China and Europe.

Poverty reduction in SAR


The report noted that per capita income growth in the South Asian region is expected to decrease from 5.6 per cent in 2023 to 5.1 per cent in 2024-25, then slightly rise to 5.2 per cent in 2026. “While this indicates a renewed decline in poverty, the anticipated rate of poverty reduction outside India in 2024-25 is slower than initially projected in January,” the World Bank said. This slower pace is due to weaker-than-expected growth in private consumption and fiscal adjustments that may reduce household income.

Projection for global inflation


Beyond GDP growth, the World Bank projects global inflation to moderate, but more slowly than previously expected, averaging 3.5 per cent this year. Due to ongoing inflationary pressures, central banks in advanced and emerging market economies are likely to remain cautious about easing monetary policy. Consequently, average benchmark policy interest rates are expected to stay about double the 2000-19 average over the next few years.

Risks to global growth


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

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First Published: Jun 12 2024 | 1:01 PM IST

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