In its most recent India Development Update report, the World Bank reduced India’s growth prediction for fiscal 2023–24 (FY24) from 6.6 percent to 6.3 percent. India’s development is anticipated to be constrained by slower consumer growth and difficult external conditions, it stated.
India’s economy is still strong despite some indications of deceleration. India’s economy was one of the fastest-growing in the world despite considerable obstacles in the global environment, it was highlighted.
According to Auguste Tano Kouame, the World Bank’s country director in India, “the Indian economy continues to exhibit excellent resilience to external shocks.” “India’s service exports have continued to grow despite external headwinds, and the current-account deficit is decreasing.”
In the third quarter (Q3) of FY23, real gross domestic product (GDP) expanded by 4.4% year over year (YoY), a slower rate than the Q2’s growth of 6.3%. This was the result of weaker growth in private consumption and declining government consumption.
Private consumption increased at a slower rate than it had in the previous two quarters, while government consumption shrank much more due to the removal of stimulus connected to the epidemic. The study observed that despite high global commodity prices and rising borrowing costs, investment increased significantly because to the central government’s capex push through infrastructure development projects.
India’s increase in goods exports was hampered by unfavorable global conditions, but its growth in services exports was still rather strong. Due to the private consumption’s more subdued increase, import growth decreased. Because of the narrowing of net exports from the wide deficit in the first half of FY23, net exports are no longer as detrimental to growth.
Government spending is anticipated to expand at a slower rate as a result of the withdrawal of pandemic-related fiscal assistance measures, it said in a release. “Higher borrowing rates and slower income growth will impact on private consumption growth,” it added.
Although headline inflation is high, the World Bank research indicated that it is expected to fall to an average of 5.2% in FY24 due to lowering global commodity prices and some moderating of local demand. “By raising the policy interest rate, the Central Bank of India [RBI] has discontinued its accommodating tactics for containing inflation. India’s financial sector is also still strong, supported by improvements in asset quality and strong lending expansion in the private sector “the announcement stated.
The consumer price index for February 2023 in India was estimated at 6.44 percent, a little decline from the previous month but still over the RBI’s upper tolerance range of 6%. Retail inflation in January was 6.52 percent. Retail inflation in India exceeded the RBI’s 6% objective for three consecutive quarters and only managed to return to the RBI’s safe zone in November of last year. The debt-to-gross domestic product (D/GDP) ratio is predicted to stabilize as a result of the report’s projection that the general government deficit will decrease.
According to the World Bank research, the current account deficit is predicted to decrease from an expected 3.0% of GDP in FY23 to 2.1% of GDP as a result of strong service exports and a decreasing goods trade imbalance.
