The World Bank Tuesday kept India’s growth forecast unchanged at 6.3% for FY24, driven by investment, while sharply revising its inflation projection to 5.9% from 5.2%.
“Private consumption growth is likely to slow as the post-pandemic catch up fades, and external demand for India’s exports will be affected by slowing growth in major trading partners, including the EU,” the World Bank said in its India Development Outlook, citing public investment in infrastructure as a significant driver of growth.
India’s economy grew 7.8% in the first quarter of the fiscal owing to strong domestic demand. However, the multilateral lender said that domestic demand will remain robust but at a slower pace.
“Private consumption growth is likely to taper off as post-pandemic pent-up demand fades and high food price inflation constrains demand, particularly for low-income households,” it noted.
The Washington-headquartered multilateral lender pointed out that inflation is likely spike more than expected at 5.9% in FY24, closer to the upper limit of Reserve Bank of India’s target of 2-6%.
“Abnormal rainfall during the monsoon months caused a sharp increase in food prices in July 2023. Though eased in August, it is expected to continue to weigh on headline inflation through the rest of the fiscal year,” the World Bank said.
It further noted that oil, even though lower than the peaks witnessed during 2022, also remained a concern.
India’s inflation eased marginally to 6.8% in August compared with the 15-month high of 7.4% hit in July. Experts indicate it is expected to ease further in September.
“The RBI’s policy of withdrawing accommodation and raising the policy interest rate over the last year has helped rein-in core inflation, which is expected to continue to decelerate gradually,” the World Bank said.
The RBI’s Monetary Policy Committee will decide on the policy rate, which has been held at 6.5% since February, later this week.
On the fiscal side, the World Bank projected a slight improvement, with the general government deficit declining to 8.7% in FY24 from 9% of the Gross Domestic Product in the previous fiscal. However, it pointed out that subsidy programmes, ahead of 2024 general elections could weigh on fiscal roadmap.
“Although fiscal intervention has been limited so far, fiscal consolidation could be delayed by subsidy programs to limit the impact of high food prices on vulnerable households ahead of the general elections in 2024,” it said.
Last month, the government announced a Rs 200 subsidy on LPG cylinders for all households.
The World Bank forecasted public debt to stabilise around 83% of GDP in FY24, falling to 82.4% in FY25.
In line with others
The World Bank forecast is in line with other projections of GDP growth. S&P Global Ratings, recently, maintained India’s growth at 6%, sharply revising its inflation numbers.
Fitch, another rating agency, also maintained India’s growth forecast, whereas Asian Development Bank, revised the forecast downwards to 6.3%.
The Reserve Bank of India forecasts growth to average 6.5% in FY24.
The World Bank projects growth to rise to 6.4% in FY25 and inflation to fall to 4.7%.
