India will remain the fastest-growing of the world’s largest economies, its pace of expansion to moderate, says World Bank

X: @prashanthamine

Mumbai: India will remain the fastest-growing of the world’s largest economies, although its pace of expansion is expected to moderate, says the World Bank’s Global Economic Prospects (GEP) report for June 2024. From a high growth rate of 9.7% in 2021-22, it came down to 7.0% in 2022-23, and is estimated to again rise to 8.2% in 2023-24. The World Bank has its GEP report has forecast that the growth of the Indian economy is expected to moderate to 6.6% in 2024-25, rise marginally to 6.7% 2025-26 and further rise marginally to 6.8% in 2026-27.

Indermit Gill, Senior Vice President and Chief Economist at The World Bank Group in his Foreword to the GEP report for the South Asia Region (SAR), notes, “India and Indonesia are two additional examples of robust performance. India’s economy has been buoyed by strong domestic demand, with a surge in investment, and robust services activity. It is projected to grow an average of 6.7 percent per fiscal year from 2024 through 2026 – making South Asia the world’s fastest-growing region.”

The World Bank has recently released its GEP report for the SAR that includes countries like Afghanistan, Maldives, Sri Lanka, Bangladesh, Bhutan, Nepal and Pakistan.

According to the GEP report, “after a high growth rate in Fiscal Year (FY) 2023/24, steady growth of 6.7 percent per year, on average, is projected for the three fiscal years beginning in FY2024/25. This moderation is mainly due to slowdown in investment from a high base.”

“However, investment growth is still expected to be stronger than previously envisaged and remain robust over the forecast period, with strong public investment accompanied by private investment. Private consumption growth is expected to benefit from a recovery of agricultural production and declining inflation. Government consumption is projected to grow slowly, in line with the government’s aim of reducing current expenditure relative to GDP (Gross Domestic Product).”

The report states that growth in the South Asia Region (SAR) is projected to slow down from 6.6 percent in 2023 to 6.2 percent in 2024, mainly due to a moderation of growth in India from a high base in recent years. With steady growth in India, regional growth is forecast to stay at 6.2 percent in 2025-26, says the World Bank in its GEP June report.

The report underscores the importance of India in the South Asia Region, when it states, “Growth in SAR is estimated to have increased to 6.6 percent in 2023, largely driven by faster growth in India. In early 2024, strong activity continued in India.”

In India, growth is estimated to have picked up to 8.2 percent in fiscal year (FY) 2023-24 (April 2023 to March 2024) – 1.9 percentage points higher than estimated in January. Growth in industrial activity, including manufacturing and construction, was stronger than expected, alongside resilient services activity, which helped offset a slowdown in agricultural production partly caused by monsoons. Growth of domestic demand remained robust, with a surge in investment, including in infrastructure, offsetting a moderation of consumption growth as post-pandemic pent-up demand eased.

In India, inflation has kept within the Reserve Bank of India’s (RBI) target range of 2 to 6 percent since September 2023. In India, the fiscal deficit is projected to shrink relative to GDP, partly because of increased revenues generated by the authorities’ efforts to broaden the tax base.

The diplomatic row that the current regime in Maldives has had with India and the backlash from tourists from India boycotting the island nation, is felt in the World Bank report.

“Growth in Maldives is projected to rise to 4.7 percent in 2024 – a downward revision of 0.5 percentage point from January. Tourist spending is expected to be more moderate, as a shift in tourist demand to less expensive accommodation continues”, says the World Bank report.