SUMMARY
- The World Bank has revised its forecast for India’s economic growth for FY25 from 6.6% to 7%.
- India is expected to see a decline in its debt-to-GDP ratio from 83.9% in FY24 to 82% by FY27.
- RBI has also set its estimate for India’s Gross Domestic Product (GDP) growth for FY25 at 7.2%.
On Tuesday, the World Bank revised its forecast for India’s economic growth for FY25, increasing the projection from the previously estimated 6.6% to 7%. This upward adjustment is attributed to several factors, including the government’s sustained investment in infrastructure, an increase in household spending on real estate, favorable outcomes in the monsoon and agricultural sectors, and a rise in private consumption.
Despite facing global economic challenges, the World Bank maintains a positive outlook on India’s long-term economic prospects, highlighting robust revenue growth and further fiscal consolidation as key drivers.
According to its projections, India is expected to see a decline in its debt-to-GDP ratio from 83.9% in FY24 to 82% by FY27. Additionally, the current account deficit is anticipated to remain within the range of 1% to 1.6% of GDP throughout this period.
In its India Development Update, released on Tuesday, the World Bank highlighted India’s resilience in the face of geopolitical uncertainties and restrictive monetary policies. Despite these challenges, India demonstrated exceptional strength, achieving an economic growth rate of 8.2% in FY24, positioning it as the world’s fastest-growing major economy.
The urban labor market has shown gradual improvement since the peak of the pandemic, although youth unemployment remains a concern, hovering around 17%. Looking ahead, the World Bank forecasts sustained economic growth, with an average annual rate of 6.5% from FY25 to FY27, building on a strong foundation established in the previous years.
In a recent update, Moody’s Investor Service also revised its economic growth forecasts for India, raising them to 7.2% in 2024 and 6.6% in 2025, respectively, from earlier estimates of 6.8% and 6.4%. The International Monetary Fund also raised its growth estimate for India in FY25 by 20 basis points to 7% in July.
The Reserve Bank of India has also set its estimate for India’s Gross Domestic Product (GDP) growth for FY25 at 7.2%.
Following the release of the India Development Update, Auguste Tano Kouame, the World Bank’s Country Director for India, expressed confidence in India’s economic trajectory, emphasizing the country’s ability to maintain robust growth in the medium term without significant slowdown.
He went on to add that in addition to its strengths in Information Technology, Business Services, and Pharmaceuticals, India has the potential to broaden its export portfolio by increasing its exports in the textiles, apparel, and footwear sectors, as well as electronics and green technology products.
The GDP growth rate for India moderated to 6.7% on an annual basis during Q1 FY25, a decrease from the previous quarter’s rate of 7.8%, as reported by the statistics ministry last week. This slowdown was primarily attributed to a reduction in government capital expenditure in the context of the general elections and a decline in urban consumer confidence.
However, the Gross Value Added (GVA), which measures the total value of goods and services produced within the economy, saw an increase to 6.8%, from 6.3% in the preceding quarter, suggesting an improvement in business activity.
Moreover, the World Bank has forecasted India’s retail inflation, as indicated by the Consumer Price Index (CPI), to rise by 4.5% in FY25, 4.1% in FY26, and 4% in FY27, in line with the Reserve Bank of India’s target.
Despite its robust economic growth, India’s share in global trade does not reflect its economic size. The report highlights that India has not fully leveraged the opportunities arising from China’s retreat from labor-intensive manufacturing.
