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Informist, Tuesday, Sep 3, 2024

 

NEW DELHI – India's medium-term growth outlook remains positive, and the economy continues to grow at a healthy pace even amid challenging external conditions, World Bank said today. The multilateral agency raised India's GDP growth projection by 40 basis points to 7% for the current financial year started April, adding that growth will remain strong in 2025-26 (Apr-Mar) and 2026-27 as well. It has projected the Indian economy to grow 6.7% in 2025-26 and 2026-27.

 

"Growth was boosted by public infrastructure investment and an upswing in household investments in real estate," the World Bank said in its India Development Update released today. Growth in the recent past has been mostly on the back of robust government spending.

 

This upward revision in the growth forecast comes at a time when India's GDP growth slowed to a five-quarter low of 6.7% in Apr-Jun due to a modest pace of government expenditure and low growth in net taxes, data released by the National Statistical Office last week showed. The Indian economy grew 8.2% a year ago. 

 

On the expenditure front, gross fixed capital formation recorded the fastest growth of 7.5% in Apr-Jun, closely followed by private final consumption which rose 7.4%. Government consumption, which was down 0.2%, remained a drag. In the preceding quarter, gross fixed capital formation was up 6.5%, private final consumption expenditure rose 4.0%, and government consumption rose 0.9%. 

 

According to World Bank, gross fixed capital formation will grow 7.8% in 2024-25, higher than current levels, while private final consumption may moderate and record a 5.7% growth on year. Government consumption, which remained a drag, is expected to grow 4.3% in the current fiscal.

 

On the supply side, World Bank said that buoyant manufacturing sector, and resilient service activity, compensated for underperformance in agriculture. 

 

Among the three broad sectors of the economy, industry grew the fastest at 8.3% in Apr-Jun, followed by services at 7.2%, while agriculture stood last with a growth of just 2.0%. Within the industry, the main drivers of growth were construction, which rose 10.5%, and electricity, gas supply and utility services, which grew 10.4%.

 

The multilateral agency sees the industry sector to grow 7.6% this year, followed by the services sector growth at 7.4% and the farm sector at 4.1%. In 2023-24, the industry sector had grown 9.5%, the services sector had grown 7.6% while agriculture sector had grown a paltry 1.4%. 

 

The government has projected the Indian economy to grow 6.5-7.0% in 2024-25, which is lower than the Reserve Bank of India's projection of 7.2%.

 

The India Development Update also highlighted the critical role of trade for boosting growth. 

 

"India can boost its growth further by harnessing its global trade potential. In addition to information technology, business services and pharma, where it excels, India can diversify its export basket with increased exports in textiles, apparel, and footwear sectors, as well as electronics and green technology products," Auguste Tano Kouame, World Bank's Country Director in India, said. 

 

The India Development Update report recommended three-pronged approach towards achieving the $1 trln merchandise export target--reducing trade costs further, lowering trade barriers, and deepening trade integration. "...it also notes that tariff and non-tariff barriers have increased and could limit the potential for trade focused investments," it said.

 

According to latest data, India's merchandise trade deficit widened to $23.50 bln in July from $19.00 bln a year ago because of a rise in imports while exports declined. In Apr-Jul, exports rose 4.1% on year to $144.12 bln, and imports increased 7.6% to $229.70 bln. The trade deficit in the first four months of 2024-25 was $85.58 bln, up 13.9% on year.

 

"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 economist and co-authors of the report, said. 

 

The current account deficit is expected to remain at around 1.0-1.6% of GDP up to 2026-27, the report said. India's current account deficit in 2023-24 moderated to $23.2 bln or 0.7% of GDP from $67.0 bln or 2.0% of GDP a year ago due to a lower merchandise trade deficit.  

 

"India's robust growth prospects along with declining inflation will help to reduce extreme poverty," Kouame said. The multilateral agency pegged India's headline inflation to average 4.5% in 2024-25, 4.1% in 2025-26 and 4.0% in 2026-27.

 

India's CPI inflation fell to a 59-month low of 3.54% in July from a four-month high of 5.08% in June, latest data showed. This is the first time CPI inflation has fallen below the RBI's target of 4% since September 2019. This does not warrant a cheer, however, as the fall in the headline print was mainly because of the statistical effect of a high base. The base effect was such that had the overall index remained unchanged in July from the previous month, headline inflation would have fallen to 2.09%.  End

 

US$1 = 83.95 rupees

 

Reported by Priyasmita Dutta

Edited by Akul Nishant Akhoury

 

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