The World Bank has revised India’s growth forecast for FY25 to 7 per cent from 6.6 per cent earlier in its latest India Development Update released on Tuesday.
“Growth was boosted by public infrastructure investment and an upswing in household investments in real estate. On the supply side, it was supported by a buoyant manufacturing sector, which grew by 9.9 per cent, and resilient services activity, which compensated for underperformance in agriculture,” the World Bank report said.
World Bank’s country director for India, Auguste Kouame, said that India is becoming more dynamic than ever in a challenging environment and does not face the risk of falling into the middle-income trap if it continues its policies and reforms.
“India has had success despite adversity. I don’t see the growth slowing down to the point it is trapped,” Kouame said.
India grew at 8.2 per cent in FY24, becoming the fastest-growing major economy in the world.
Recently, the International Monetary Fund (IMF) had raised India’s Gross Domestic Product (GDP) growth forecast for the current financial year to 7 per cent. Moody’s Ratings has also raised India’s GDP growth projection for calendar year 2024 to 7.2 per cent from 6.8 per cent earlier.
The World Bank expects India’s medium-term outlook to remain positive with a GDP growth projection of 6.7 per cent for FY26 and FY27.
The World Bank report noted that while the urban labour market had improved gradually since the peak of the pandemic, youth unemployment remained elevated at around 17 per cent.
On the steps announced in the Budget to address unemployment issues, Kouame said that while they were good decisions, other things needed to happen.
He said that India may be getting more growth from exports but is creating fewer jobs, such as through increasing the share of the country in high-tech goods exports.
“Is it just a policy or a structural issue? … India should try to conquer less advanced, lower-end markets with goods that may be more job-creating. China did not just try to export to the US but to the whole world,” Kouame said.
On the production-linked incentive scheme, World Bank economist Aurelien Kruse said that the intention of the scheme was good, but there is only so much that a government scheme can do given the scale of the Indian economy. “To achieve scale and systemic changes, you have to go to the root of the problem,” he said.
The World Bank report has forecast inflation—consumer price index—of 4.5 per cent for FY25, declining to 4.1 per cent and 4 per cent in FY26 and FY27, respectively.
“The monetary policy should target both core and headline inflation,” Kruse added.
First Published: Sep 03 2024 | 3:57 PM IS