‘Accounts for the bulk of South Asia’s economy’: World Bank projects India’s growth at 7.5 for 2024

The Indian economy is projected to grow at a robust 7.5 per cent in 2024, stated the World Bank, that credited India for a bulk of the growth in the South Asian economy. The report stated that South Asia’s prospects remain bright in the short term but there still are concerns in the horizon.

“In India, which accounts for the bulk of the region’s economy, output growth is expected to reach 7.5 per cent in FY23/24 before returning to 6.6 per cent over the medium term, with activity in services and industry expected to remain robust,” state the World Bank report.
 
“In India, output growth is projected to reach 7.5 per cent in FY2023/24 on the back of robust growth in Q3 of FY2023/24. Growth is expected to moderate to 6.6 per cent in FY2024/25 before picking up in subsequent years as a decade of robust public investment yields growth dividends. +e expected slowdown in growth between FY2023/24 and FY2024/25 mainly reflects a deceleration in investment from its elevated pace in the previous year. Growth in services and industry is expected to remain robust, the latter aided by strong construction and real estate activity. Inflationary pressures are expected to subside, creating more policy space for easing financial conditions. Over the medium term, the fiscal deficit and government debt are projected to decline, supported by robust output growth and consolidation efforts by the central government,” the World Bank report stated.

This comes after India’s manufacturing PMI for the month of March was reported to have reached a 16-year high at 59.1, according to HSBC final India Manufacturing Purchasing Managers' Index, compiled by S&P Global. Hiring increased at the strongest rate in six months, new order exports increased to the highest since May 2020, and manufacturing output rose for the 33rd month in March. As per S&P, the outlook for the upcoming year was optimistic.

“South Asia is expected to continue to be the fastest-growing emerging market and developing economy (EMDE) region over the next two years. This is largely thanks to robust growth in India, but growth is also expected to pick up in most other South Asian economies. However, growth in the near term is more reliant on the public sector than elsewhere, whereas private investment, in particular, continues to be weak,” the report stated.

The World Bank, in its report added that overall in South Asia, the growth is expected to be strong at 6.0-6.1 per cent in 2024. This growth is driven by the recoveries of Pakistan and Sri Lanka economies, and the strong growth in India.

The bank said that while the rest of the region is picking up, it is expected to remain below pre-pandemic averages.

“South Asia’s growth outlook is somewhat stronger than in the previous edition of this report, by 0.4 percentage points for 2024 and 0.3 percentage points for 2025. +is primarily reflects upward revisions to investment growth in India and somewhat faster-than-anticipated rebounds from last year’s recessions in Pakistan and Sri Lanka,” it added.

India’s inflation remained within the Reserve Bank of India’s 2-6 per cent target range since a spike in the mid-2023, stated the report. The policy rate has remained unchanged since February 2023. Food price inflation has been elevated, partly reflecting a weak harvest due to El Niño, the bank said.

According to a recent State Bank of India report, RBI is not likely to alter the rates this upcoming Monetary Policy Committee meeting, scheduled from April 3-5. According to the SBI, RBI is expected to cut rates only in the third quarter of FY25.

Net portfolio rebounded in India, the World Bank report added. Government revenues are expected to increase on the back of continued efforts to broaden the tax base and improve tax administration, and current expenditures are likely to decrease as pandemic-related measures are wound down, it said.

“South Asia’s growth prospects remain bright in the short run, but fragile fiscal positions and increasing climate shocks are dark clouds on the horizon. To make growth more resilient, countries need to adopt policies to boost private investment and strengthen employment growth,” said Martin Raiser, World Bank Vice President for South Asia.