World Bank follows IMF. Revises India's FY25 GDP growth forecast to 7%

The International Monetary Fund had earlier also raised India's growth forecast to 7 per cent for the financial year 2024-25 (FY25), following the conclusion of general elections in the country

The World Bank has raised its growth forecast for India's economy to 7 per cent for the current financial year (FY25), up from an earlier projection of 6.6 per cent, according to a statement released on Tuesday. This revision comes amid expectations of stronger economic performance, driven by key factors such as private consumption and investment.

The report highlights that while the economy remains resilient, achieving the ambitious goal of $1 trillion in merchandise exports by 2030 will require strategic diversification and deeper integration into global value chains.

"India's robust growth prospects, along with declining inflation, will contribute to reducing extreme poverty," said Auguste Tano Kouame, the World Bank's country director in India. "To further accelerate growth, India needs to harness its global trade potential. Beyond its strengths in IT, business services, and pharmaceuticals, India should diversify its export basket by expanding in sectors such as textiles, apparel, footwear, electronics, and green technology products."

 

The World Bank added that it expects a gradual increase in private investment and a recovery in consumption. Meanwhile, it pointed out that job creation remains the main challenge to India's economic growth.

The urban unemployment rate remains high at an average of 17 per cent, the World Bank said.

Despite global economic uncertainties, India’s growth prospects continue to be resilient. According to the latest India Development Update (IDU), the country's economy has maintained strength, driven by factors such as improved monsoon conditions and a recovery in private consumption. Ran Li, a senior economist at the World Bank, highlighted that these factors have contributed to an upward revision of India’s gross domestic product (GDP) forecast.

“With rising costs of production and declining productivity, India’s share in global apparel exports has declined from 4 per cent in 2018 to 3 per cent in 2022... 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,” Nora Dihel and Ran Li, senior economists and co-authors of the report, said.

In addition to strong growth, India's external economic indicators have shown improvement. The current account deficit has narrowed, and foreign exchange reserves reached an unprecedented high of $670.1 billion in early August, equivalent to over 11 months of import cover. These positive trends reflect India's growing economic stability, even as it navigates a complex global environment.

Looking ahead, the World Bank projects that India's medium-term economic outlook will remain positive, with growth expected to reach 7 per cent in FY25 and maintain strength in subsequent years. Fiscal consolidation efforts and robust revenue growth are expected to reduce the debt-to-GDP ratio from 83.9 per cent in FY24 to 82 per cent by FY27. The current account deficit is forecast to remain between 1 per cent and 1.6 per cent of GDP through FY27.

The IDU recommends a three-pronged strategy to achieve the $1 trillion merchandise export target by 2030. This strategy includes further reducing trade costs, lowering trade barriers, and deepening trade integration.

IMF forecasts 7 per cent growth in India for FY25

The update aligns with similar optimism from the International Monetary Fund (IMF), which in July also revised its growth projection for India’s gross domestic product (GDP) for FY25, increasing it by 20 basis points to 7 per cent. The IMF cited a notable boost in private consumption, particularly in rural areas, as a primary driver for this upward revision.

“The forecast for growth in India has … been revised upward … with the change reflecting carryover from upward revisions to growth in 2023 …,” the IMF’s World Economic Outlook (WEO) update stated. The IMF's previous estimate, made in April, had anticipated a slower growth rate of 6.5 per cent for FY26, a projection which remains unchanged.

Slowdown in GDP growth in April-June quarter

Despite these positive adjustments, data from the National Statistical Office (NSO) highlighted a slight slowdown in GDP growth during the April-June quarter of this year. Growth decelerated to 6.7 per cent due to reduced government spending, attributed to the enforcement of a Model Code of Conduct ahead of the general elections. This marked a deceleration from the previous financial year's robust expansion, where GDP grew at 8.2 per cent, driven by a better-than-expected growth rate of 7.8 per cent in the final quarter of FY24.

The Reserve Bank of India (RBI) has also projected the Indian economy to grow at 7.2 per cent for FY25.