The World Bank has retained its GDP growth forecast for India at 6.3 percent for 2023-24 even amid persistent and intensifying global headwinds.
"The expected moderation (from 7.2 percent in 2022-23) is mainly due to challenging external conditions and waning pent-up demand," the Bank said in its India Development Update report, released on October 3.
"An adverse global environment will continue to pose challenges in the short-term," Auguste Kouame, the Bank's Country Director in India, said.
Also Read: India's September manufacturing PMI lowest in five months at 57.5
"Tapping public spending that crowds in more private investments will create more favourable conditions for India to seize global opportunities in the future and thus achieve higher growth," Kouame added.
The World Bank's growth forecast for the current financial year is 20 basis points lower than that of the Indian government and the Reserve Bank of India (RBI).
One basis point is a hundredth of a percentage point.
While the World Bank sees growth slowing down this year, it expects it to edge up in the next two years to 6.4 percent and 6.5 percent.
The Bank's latest update comes after data released in August showed India's growth surged to 7.8 percent in the first quarter of 2023-24 - slightly higher than economists' expectations of 7.7 percent but lower than the RBI's forecast of 8 percent.
Even as World Bank expects GDP growth to only rise slightly in 2024-25 and 2025-26, growth in private consumption is seen rising to 6 percent next year and 6.4 percent in 2025-26 from 5.9 percent this year. Government consumption is seen rising even faster: 5.1 percent and 5.8 percent in the next two years from 4.1 percent this year.
At the same time, growth in gross fixed capital formation is seen declining from 8.9 percent this year to 7.8 percent in 2024-25 and 7.3 percent in 2025-26.
"We do have a moderating trajectory when it comes to investment growth. But what’s important to know…is that investment growth is actually higher than its average over the last several years. So, it's actually moderating down back to its longer-term average and is still a major driver of growth," Dhruv Sharma, a Senior Economist at World Bank and lead author of the India Development Update report, said.
Country Director Auguste Kouame added that it was also worth noting that despite the falling trend that the World Bank was forecasting, investment growth is set to remain higher than overall GDP growth, which meant the investment-to-GDP ratio is increasing.
"And investment-to-GDP ratio cannot increase indefinitely because investment's share of GDP will be capped around 35 percent. It cannot reach 60 percent like consumption. Historically we have't seen more than 40 percent investment-to-GDP ratio in recent times in any country, including in East Asian countries that invested a lot. So, the fact that there is a decline in investment-to-GDP ratio should not be surprising as long as investment growth itself is not far below GDP growth – so the economy is not divesting, it is still investing," Kouame said.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
