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Informist, Friday, Jan. 17, 2025

 

NEW DELHI – The Indian economy will remain the fastest growing major economy over the next two years even as growth is projected to moderate sharply in 2024-25 (Apr-Mar), the World Bank said in a report late Thursday.

 

The multilateral agency slashed its earlier forecast for India's GDP growth by 50 basis points to 6.5% for FY25 but projected that the Indian economy will expand 6.7% in both FY26 and FY27. India's GDP grew 8.2% in FY24 and the government estimates growth to fall to a four-year low of 6.4% in the current fiscal.

 

Slower growth in FY25 reflects a slowdown in investment and weak manufacturing growth, the World Bank said in the January edition of its Global Economic Prospects report. "Private consumption growth has remained resilient, primarily driven by improved rural incomes accompanied by a recovery of agricultural output. In contrast, higher inflation and slower credit growth have curbed consumption in urban areas," the report said.

 

For the next two years, the World Bank expects India's services sector to expand sustainably, while manufacturing activity is anticipated to strengthen, supported by government initiatives "to enhance logistics infrastructure and improve the business environment through tax reforms".

 

"Private consumption growth is expected to be boosted by a strengthening labour market, expanding credit, and declining inflation," the World Bank said. "However, government consumption growth is likely to remain contained." World Bank sees investment growth in India remaining steady, with rising private investment, supported by healthy corporate balance sheets and easing financing conditions.

 

Fiscal deficit is expected to continue shrinking in India, largely on account of growing tax revenues, the World Bank said. The government has targeted a fiscal deficit of 4.9% of GDP in FY25, which economists expect to come in lower by 10-20 bps.

 

The global economy is projected to expand by 2.7% in both 2025 and 2026, the same pace as in 2024, as inflation and interest rates decline gradually, the World Bank said. Growth in developing economies is also expected to hold steady at about 4% over the next two years. "This, however, would be a weaker performance than before the pandemic--and insufficient to foster the progress necessary to alleviate poverty and achieve wider development goals."

 

Indermit Gill, World Bank Group's Chief Economist, said the next 25 years will be tougher for developing economies than the last 25 years. "Most of the forces that once aided their rise have dissipated. In their place have come daunting headwinds: high debt burdens, weak investment and productivity growth, and the rising costs of climate change."

 

In the coming years, developing economies will need a new playbook that emphasises domestic reforms to quicken private investment, deepen trade relations, and promote more efficient use of capital, talent and energy, Gill was quoted as saying in a release.  End

 

Reported by Shubham Rana

Edited by Tanima Banerjee

 

 

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