World Bank Maintains India FY24 GDP Forecast At 6.3% Amid External Challenges, Waning Pent-Up Demand

In its India Development Update report, the World Bank said that it expects moderation in the growth due to challenging external conditions and waning pent-up demand

The World Bank on Tuesday retained its forecast of India's Gross Domestic Product (GDP) for the financial year 2023-24 (FY24) at 6.3 per cent. In its India Development Update report, the bank said that it expects moderation in the growth due to challenging external conditions and waning pent-up demand. However, it noted that the country continues to show "resilience against the backdrop of a challenging global environment."

"The World Bank forecasts India’s GDP growth for FY23/24 to be at 6.3 per cent. The expected moderation is mainly due to challenging external conditions and waning pent-up demand. 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," World Bank’s latest India Development Update (IDU) said on Thursday. 

The World Bank's growth projection for the current fiscal year is 20 basis points lower than that of both the government and the Reserve Bank of India (RBI) forecast of 6.5 per cent. To understand, one basis point represents one-hundredth of a percentage point.

In its flagship biannual report, the World Bank noted that despite facing significant global challenges, India is among the fastest-growing major economies in FY23, with a growth rate of 7.2 per cent. The World Bank anticipates India's growth rate to be 6.3 per cent in FY24. In its report, the World Bank predicted a slight slowdown in growth for this year but forecasted a gradual increase in the following two years, with growth reaching 6.4 per cent and 6.5 per cent, respectively.

“An adverse global environment will continue to pose challenges in the short-term," said Auguste Tano Kouame, 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,” he added. 

The Thursday report further noted that 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 normalise 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 at the 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,” Sharma further said. 

The World Bank also expects fiscal consolidation to continue in FY24 with the central government fiscal deficit projected to continue to decline from 6.4 per cent to 5.9 per cent of 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 GDP, and it will be adequately financed by foreign investment flows and supported by large foreign reserves, the global lender said.