According to the World Bank’s assessment, India’s GDP growth is predicted to decelerate to 6.3% in FY24 as a result of decreased consumption brought on by slower income growth. The World Bank has revised its previous prediction of 6.6% economic growth for India in the current fiscal year (that began April 1st).
Since May 2022, the Reserve Bank of India has increased interest rates by 250 basis points to curb inflation.
Clarity From World Bank
The World Bank stated that slower income growth and rising borrowing rates will have an impact on private consumption growth.
The removal of pandemic-related fiscal assistance measures is expected to result in a reduced rate of growth for government consumption.
The World Bank calculated a 6.9% growth rate for the previous fiscal year.
On the strength of strong service exports and a declining item trade deficit, it predicted that the current account deficit would decrease to 2.1% of gross domestic product for the current fiscal year from an expected 3% in the previous year.
Short-term investment flows to developing countries, including India, are in danger due to spillover from recent financial market instability in the US and Europe, according to World Bank economist Dhruv Sharma.
Analysts and economists predict that a jump in India’s services exports, which reached a record high in the quarter of October to December, will protect the economy from external dangers while a slowing global economy will likely have a negative impact on the nation’s product exports.
A study indicates that more profitable services like consulting and research and development are now driving service exports in addition to IT services.
According to data released by the Reserve Bank of India (RBI) on Friday, India’s exports of services climbed by 24.5% year over year in the three months from October to December 2022, hitting a record $83.4 billion.
The services surplus increased by 39.21% to a record $38.7 billion after excluding any imports from the sector. The current account deficit decreased higher than anticipated to $18.2 billion, or 2.2% of GDP, as a result of this and a decrease in the merchandise trade imbalance.
According to Sunil Talati, head of the Services Export Promotion Council, “We estimate services exports to expand to above $375 billion by March 2024, as opposed to $320-350 billion for the year ending March 2024.”
By March 2025, he said, services exports will certainly overtake goods exports.
According to the most recent RBI statistics, October-December goods exports were $105.6 billion.
By the end of February, the central government’s budget deficit reached 82.8% of the full-year objective.
The government projects a deficit of 17.55 lakh crore, or 6.4% of GDP, for the entire fiscal year 2022–23.
According to Auguste Tano Kouame, the World Bank’s Country Director in India, “India is still going to be one of the fastest-growing economies in the world, even if we have changed our projection.”
He added that India has to expand at an 8% rate to reach upper middle-income status by 2030 and a developed economy by 2047. To do so, Mr. Kouame noted, there must be significant reforms in the labor and land markets as well as the provision of financing and long-term capital for small businesses.
He praised India’s advancements in green financing and proposed making it available to the private sector. “India is off to a good start in the world of green funding. Hopefully, the private sector would also use this”, he said.
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