World Bank pegs India’s GDP growth at 6.3% as global headwinds emerge

The World Bank has forecast India’s GDP growth for 2023-24 to be at 6.3 per cent as
global headwinds are emerging as a drag.

The expected moderation (from 7.2 per cent in 2022-23) is mainly due to challenging
external conditions and waning pent-up demand," the World Bank said in its India
Development Update (IDU) report.

However, service sector activity is expected to remain strong with growth of 7.4 per
cent and investment growth is also projected to remain robust at 8.9 per cent, the
report adds.

India continues to show resilience against the backdrop of a challenging global
environment, according to the World Bank.

The IDU, the Bank’s flagship half yearly report on the Indian economy, observes that
despite significant global challenges, India was one of the fastest-growing major
economies in FY22/23 at 7.2 per cent.

India’s growth rate was the second highest among G20 countries and almost twice
the average for emerging market economies.

This resilience was underpinned by robust domestic demand, strong public
infrastructure investment and a strengthening financial sector. Bank credit growth
increased to 15.8 per cent in the first quarter of FY23/24 compared with 13.3 per
cent in the first quarter of FY22/23, the report explains.

The IDU expects that global headwinds will continue to persist and intensify due to
high global interest rates, geopolitical tensions, and sluggish global demand.
As a result, global economic growth is also set to slow down over the medium term
against a background of these combined factors.

“An adverse global environment will continue to pose challenges in the short-
term," said Auguste Tano Kouame, the World Bank's Country Director in India.
“Tapping public spending that crowds in more private investments will create more
favorable conditions for India to seize global opportunities in the future and thus
achieve higher growth.”

Adverse weather conditions contributed to a spike in inflation in recent months.
Headline inflation rose to 7.8 per cent in July due to a surge in prices of food items
like wheat and rice. Inflation is expected to decrease gradually as food prices
normalize and government measures increase the supply of key commodities.

“While the spike in headline inflation may temporarily constrain consumption, we
project a moderation. Overall conditions will remain conducive for private
investment,” said Dhruv Sharma, Senior Economist, World Bank, and lead author of
the report.

“The volume of foreign direct investment is also likely to grow in India as rebalancing
of the global value chain continues.”

The World Bank expects fiscal consolidation to continue in FY23/24 with the central
government fiscal deficit projected to continue to decline from 6.4 per cent to 5.9 per
cent of the GDP.

Public debt is expected to stabilise at 83 per cent of GDP.

On the external front, the current account deficit is expected to narrow to 1.4 per
cent of the GDP, and it will be adequately financed by foreign investment flows and
supported by large foreign reserves.