World Bank Forecasts Robust 7.5% Growth for Indian Economy in 2024

The World Bank projects a 7.5% growth rate for the Indian economy in 2024, marking a significant upward revision from earlier estimates.

Overall growth in South Asia is anticipated to be strong at 6.0% in 2024, with India's robust growth being a major driver alongside recoveries in Pakistan and Sri Lanka.

Regional Growth Outlook:

For the following two years, South Asia is expected to develop at the highest rate in the world, with a 6.1% growth rate predicted in 2025.

In Bangladesh, output is expected to rise by 5.7% in FY24/25, while Pakistan's economy is expected to grow by 2.3% in the same period, with improving business confidence. Sri Lanka anticipates a growth rate of 2.5% in 2025.

Challenges and Concerns:

Despite the optimistic growth prospects, fragile fiscal positions and increasing climate shocks pose challenges for South Asia's economic sustainability.

The region is not fully capitalizing on its demographic dividend, which could significantly enhance output if addressed adequately.

Indian Economic Performance:

India experienced a growth rate of 8.4% in the fourth quarter of 2023, surpassing expectations, driven by rapid increases in investment and government consumption.

Inflation has remained within the Reserve Bank of India's target range, with accommodative financial conditions and improving financial soundness indicators.

Financial Indicators:

Domestic credit issuance to the commercial sector grew by 14% year-on-year in December 2023, indicating robust lending activity.

Nonperforming loan ratio declined to 3.2% in 2023, and regulatory capital exceeded requirements, indicating a healthy banking sector.

Foreign Investment and Reserves:

Foreign Direct Investment (FDI) as a share of GDP fell in 2023, but foreign portfolio investment inflows rebounded in FY2023/24, contributing to an 8% increase in foreign reserves.

Foreign reserves are now at a level sufficient to cover about 11 months of imports, enhancing India's economic resilience.

Medium-Term Growth Projections:

India's output growth is expected to moderate to 6.6% in FY2024/25 before picking up in subsequent years, driven by a decade of robust public investment.

The slowdown in growth reflects a deceleration in investment, but robust growth in services and industry is expected to continue, aided by strong construction and real estate activity.

Policy Implications:

There will likely be less pressure on inflation, which will free up more policy room to loosen banking regulations.

Strong economic growth and consolidation efforts are expected to underpin a decrease in the budget deficit and government debt over the medium term.