India’s growth continues to be resilient despite some signs of moderation. Despite significant challenges in the global environment, India was one of the fastest-growing economies in the world, it noted.
The World Bank has cut India’s growth forecast for fiscal 2023-24 (FY24) in its latest update to 6.3 per cent from 6.6 per cent earlier.
Slower consumption growth and challenging external conditions are likely to constrain India’s growth, it said.
Though headline inflation is elevated, it is projected to fall to an average of 5.2 per cent in FY24.
“The Indian economy continues to show strong resilience to external shocks,” said Auguste Tano Kouame, the World Bank’s country director in India. “Notwithstanding external pressures, India’s service exports have continued to increase, and the current-account deficit is narrowing.”
Real gross domestic product (GDP) grew by 4.4 per cent year on year (YoY) in the third quarter (Q3) of FY23—slower than the 6.3 per cent growth in Q2—due to weaker growth in private consumption and contraction in government consumption.
Growth in private consumption was lower than the previous two quarters but the contraction in government consumption was even greater, reflecting the withdrawal of pandemic-related stimulus.
However, investment grew strongly, despite elevated global commodity prices and rising borrowing costs, bolstered by the central government’s capex push through infrastructure development projects, the report noted.
Unfavourable global conditions weighed on India’s merchandise export growth, but services export growth remained relatively robust. Import growth slowed due to the more modest growth in private consumption. As a result, net exports narrowed from the large deficit in the first half of FY23, thus reducing the drag net exports places on growth.
“Rising borrowing costs and slower income growth will weigh on private consumption growth, and government consumption is projected to grow at a slower pace due to the withdrawal of pandemic-related fiscal support measures,” it said in a release.
Although headline inflation is elevated, it is projected to decline to an average of 5.2 per cent in FY24, amid easing global commodity prices and some moderation in domestic demand, the World Bank report noted.
“The Reserve Bank of India’s [RBI] has withdrawn accommodative measures to rein in inflation by hiking the policy interest rate. India’s financial sector also remains strong, buoyed by improvements in asset quality and robust private-sector credit growth,” said the release.
Retail inflation in India fell marginally but remained above RBI’s 6 per cent upper tolerance band for the second straight month in February 2023, with the consumer price index pegged at 6.44 per cent.
In January, retail inflation was 6.52 per cent. India’s retail inflation was above RBI’s 6 per cent target for three consecutive quarters and had managed to fall back to the RBI’s comfort zone only in November last year.
The report also projects the general government deficit to decline, and as a result, the debt-to-gross domestic product (GDP) ratio is projected to stabilise.
The current account deficit is estimated to narrow to 2.1 per cent of GDP from an estimated 3 per cent in FY23 on the back of robust service exports and a narrowing merchandise trade deficit, the World Bank report added.
Fibre2Fashion News Desk (DS)