World Bank Maintains India's 6.3% Growth Forecast

13 Oct 2023 CW Team

Growth in India is expected to remain robust at 6.3 per cent in 2023-24, with the country making up the bulk of the South Asia region. The World Bank's projection matches its earlier estimate from April. In the previous fiscal year, India recorded 7.2 per cent growth.

Several other organisations have also made growth forecasts for India, with the Asian Development Bank (ADB) slightly lowering its estimate to 6.3 per cent, the Reserve Bank of India (RBI) forecasting 6.5 per cent, and the OECD revising its projection to 6.3 per cent. Rating agencies like Fitch and S&P Global Market Intelligence have also provided their forecasts.

The World Bank report highlights the growth expectations for different sectors, with agriculture at 3.5 per cent, industry at 5.7 per cent, and services at 7.4 per cent during 2023-24. Investment growth is projected to remain robust at 8.9 per cent.

The report acknowledges that an adverse global environment presents short-term challenges but suggests that tapping into public spending to attract private investments will create more favourable conditions for India to leverage global opportunities and achieve higher growth.

Regarding inflation, the report anticipates a gradual decrease as food prices stabilise and government measures increase the supply of key commodities. Retail inflation is expected to stay elevated at 5.9 per cent during the year.

The World Bank expects fiscal consolidation to continue in FY24, with the central government's fiscal deficit projected to decline from 6.4 per cent to 5.9 per cent of GDP. Public debt is anticipated to stabilise at 83 per cent of GDP, and the current account deficit is expected to narrow to 1.4 per cent of GDP, adequately financed by foreign investment flows and supported by large foreign reserves.

Additionally, the report notes improvements in the asset quality of scheduled commercial banks, driven by higher loan growth, lower slippages, improved recoveries, and write-offs of bad loans.

While South Asia is predicted to grow at 5.8 per cent in 2023, making it the fastest-growing developing region globally, this growth is slower than its pre-pandemic pace and insufficient to meet its development goals.

India's economic rebound post-pandemic is expected to remain stronger than in other large emerging market and developing economies. Despite a dampening effect from monetary policy tightening on domestic demand, India's low external debt and the strong balance sheets of its financial and corporate sectors are expected to mitigate the impact of slowing global demand and rising interest rates.

While growth in merchandise exports may slow due to weak foreign demand growth, robust services exports are expected to offset this. India's strong services sector performance, including IT-related services and consulting, has been less affected by the global growth slowdown. Despite this, employment indicators suggest the potential for more robust job creation with appropriate policies.

The report notes that inflation in India had been trending below the upper bound of the target range, but a disruptive monsoon led to a substantial increase in food prices. To counter this, the government implemented an export ban on most types of rice. The Reserve Bank of India raised interest rates significantly last year and has maintained them since February.

The financial sector in India has shown few signs of strain, with improved bank balance sheets and corporate leverage ratios. The current account deficit has been largely financed by foreign portfolio investment and remittances, with healthy foreign exchange reserves. Non-performing loans in the banking sector remain low.

The World Bank has kept India's growth forecast for the current fiscal year at 6.3 per cent, underpinned by strong services sector performance despite global headwinds. The bank's India Development Update indicates that India continues to display resilience in a challenging global environment. Growth in India is expected to remain robust at 6.3 per cent in 2023-24, with the country making up the bulk of the South Asia region. The World Bank's projection matches its earlier estimate from April. In the previous fiscal year, India recorded 7.2 per cent growth. Several other organisations have also made growth forecasts for India, with the Asian Development Bank (ADB) slightly lowering its estimate to 6.3 per cent, the Reserve Bank of India (RBI) forecasting 6.5 per cent, and the OECD revising its projection to 6.3 per cent. Rating agencies like Fitch and S&P Global Market Intelligence have also provided their forecasts. The World Bank report highlights the growth expectations for different sectors, with agriculture at 3.5 per cent, industry at 5.7 per cent, and services at 7.4 per cent during 2023-24. Investment growth is projected to remain robust at 8.9 per cent. The report acknowledges that an adverse global environment presents short-term challenges but suggests that tapping into public spending to attract private investments will create more favourable conditions for India to leverage global opportunities and achieve higher growth. Regarding inflation, the report anticipates a gradual decrease as food prices stabilise and government measures increase the supply of key commodities. Retail inflation is expected to stay elevated at 5.9 per cent during the year. The World Bank expects fiscal consolidation to continue in FY24, with the central government's fiscal deficit projected to decline from 6.4 per cent to 5.9 per cent of GDP. Public debt is anticipated to stabilise at 83 per cent of GDP, and the current account deficit is expected to narrow to 1.4 per cent of GDP, adequately financed by foreign investment flows and supported by large foreign reserves. Additionally, the report notes improvements in the asset quality of scheduled commercial banks, driven by higher loan growth, lower slippages, improved recoveries, and write-offs of bad loans. While South Asia is predicted to grow at 5.8 per cent in 2023, making it the fastest-growing developing region globally, this growth is slower than its pre-pandemic pace and insufficient to meet its development goals. India's economic rebound post-pandemic is expected to remain stronger than in other large emerging market and developing economies. Despite a dampening effect from monetary policy tightening on domestic demand, India's low external debt and the strong balance sheets of its financial and corporate sectors are expected to mitigate the impact of slowing global demand and rising interest rates. While growth in merchandise exports may slow due to weak foreign demand growth, robust services exports are expected to offset this. India's strong services sector performance, including IT-related services and consulting, has been less affected by the global growth slowdown. Despite this, employment indicators suggest the potential for more robust job creation with appropriate policies. The report notes that inflation in India had been trending below the upper bound of the target range, but a disruptive monsoon led to a substantial increase in food prices. To counter this, the government implemented an export ban on most types of rice. The Reserve Bank of India raised interest rates significantly last year and has maintained them since February. The financial sector in India has shown few signs of strain, with improved bank balance sheets and corporate leverage ratios. The current account deficit has been largely financed by foreign portfolio investment and remittances, with healthy foreign exchange reserves. Non-performing loans in the banking sector remain low.