World Bank cuts India's growth forecast; ADB projects 6.4% for FY24

The World Bank and the Asian Development Bank (ADB) cut their economic growth forecasts for India for 2023-24 (FY24) by 30 and 80 basis points, respectively, to 6.3 and 6.4 per cent, citing risks to the outlook from both global and domestic factors. According to the World Bank's India Development Update, real GDP growth is expected to slow from 6.9 per cent in FY23 to 6.3 per cent in FY24 due to global slowdown spillovers and slower consumption growth. The lag effect of monetary policy tightening, increased growth uncertainty, and reduced government current spending are expected to constrain domestic demand in India in FY24, it added. The Asian Development Bank, on the other hand, stated in its most recent Asian Development Outlook that if global conditions do not deteriorate as much as expected, higher global demand will likely spur growth in India. However, any worsening of geopolitical tensions is likely to put further downward pressure on global demand and increase uncertainty, slowing India's growth rate and driving up inflation. Domestically, weather shocks to agricultural production, such as unusual rainfall or higher temperatures, could fuel food inflation, putting additional pressure on the central bank to raise interest rates, it said. The World Bank warned that lower-income groups' consumer spending will be hit in FY24 due to slower income growth. This is consistent with labour market data showing that over the last two years, job and earnings losses were higher among informal workers such as those in casual-wage work, those with less than a tertiary education, and those in low-paying sectors most affected by the pandemic, such as retail and hospitality services, and construction, it said. The ADB is more optimistic about domestic consumption growth prospects: A robust labour market and rising consumer confidence are indicators of relatively strong consumption growth in FY24 and FY25. Further, a higher tax rebate and a raised income threshold for tax exemption, announced in the most recent budget, may increase disposable income for the middle class, also boosting private consumption,” it said. The ADB forecasted that monetary policy would become more accommodating in FY25, in line with the actions of the US Federal Reserve. Due to a significant decrease in the merchandise trade deficit, both multilateral lending agencies projected India's current account deficit (CAD) to narrow to 2.1 percent and 2.2 percent of GDP, respectively. Also Read Internal accruals to fund Adani cement expansion Rail projects worth Rs 33.6k cr approved for MMR