World Bank says India’s growth to moderate to 6.3% in FY24 from 7.2% in FY23

The World Bank has said the Indian economy’s growth is expected to moderate to 6.3 per cent in the FY24 fiscal from 7.2 per cent in the previous financial year. “The expected slowdown is mainly due to waning base effects, slowing global growth and domestic price pressures,” World Bank said in its latest India development update.

The bank maintained that India will remain one of the fastest-growing major economies in the world.

It sharply revised India's inflation projection to 5.9 per cent from 5.2 per cent.

India's economy grew 7.8 per cent in the first quarter of the fiscal owing to strong domestic demand. However, World Bank said that domestic demand will remain robust but at a slower pace.

"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.

The World Bank added that inflation is likely to be more than expected at 5.9 per cent in FY24, closer to the upper limit of the Reserve Bank of India's target of 2-6 per cent.

"An adverse global environment will continue to pose challenges in the short term. 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," Auguste Tano Kouame, World Bank Country director in India, said.

The bank said that rising food prices will continue to keep headline inflation elevated. The headline inflation is expected to average around 5.9 percent in this financial year because of high food and oil prices. “The Reserve Bank of India's (RBI) 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 bank said in its report.

According to the World Bank, India's fiscal deficit is expected to decline to 8.7 percent in the 2023-2024 financial year from 9 percent of the GDP in FY23. “Fiscal consolidation is likely to be led by modest growth in recurrent spending and buoyant revenue growth, making room for investment”, said the report.

However, the Washington-based bank noted that fiscal consolidation could be delayed by subsidy programmes to limit the impact of high food prices ahead of general elections in 2024.

Kouame said the bank does not envisage relaxation of the fiscal consolidation path because of the upcoming elections. Also, the Budget signals that the government is determined to maintain its consolidation path.

The current account deficit (CAD) is projected to narrow to 1.4 per cent of GDP in this fiscal, driven by a decline in the merchandise trade deficit.

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