New Delhi: India’s growth continues to be resilient despite some signs of moderation in growth in the second half of the last fiscal, the World Bank said today. However, it has revised its FY23/24 GDP forecast to 6.3 percent from 6.6 percent (December 2022), saying growth is expected to be constrained by slower consumption growth and challenging external conditions.
“Whilst we have revised our forecast, India is still going to be one of the fastest-growing economies in the world,” Auguste Tano Kouame, World Bank’s Country Director in India, told NDTV.
India wants to become an upper middle-income country by 2030 and a developed economy by 2047, for which it will need to grow at 8%, he said. Deep reforms — among them land and labour market reforms, and ensuring small firms have sustained access to finance and long term capital — are needed to achieve that, Mr Kouame added.
He appreciated India’s strides in green finance, and suggested extending it to the private sector. “India has started well on green finance. This will hopefully be used for the private sector as well,” he said.
Pointing to areas of concern, the report said manufacturing and construction sectors shed a lot of jobs during the Covid pandemic, but added that labour market outcomes have improved post-pandemic.
“Strong domestic demand, underpinned by robust consumer spending by higher-income groups and higher public investment, was the main growth driver. However, consumer spending by low-income groups was weak due to slow income growth,” it said.
Inflation is elevated, but pressures are moderating as food and fuel prices moderate, the India Development Update, the World Bank India’s biannual flagship publication, said. It, however, remains above the upper threshold of the Reserve Bank of India’s (RBI) target range of 2-6 percent.
Since May 2022 the RBI’s Monetary Policy Committee (MPC) has hiked the repo rate (its main policy rate) by 250 basis points, it said.
The current account deficit also narrowed in the third quarter of the last fiscal as commodity prices eased, it said.
“The World Bank has revised its FY23/24 GDP forecast to 6.3 percent from 6.6 percent (December 2022). Growth is expected to be constrained by slower consumption growth and challenging external conditions. Rising borrowing costs and slower income growth will weigh on private consumption growth, and government consumption is projected to grow at a slower pace due to the withdrawal of pandemic-related fiscal support measures,” it said.
It also pointed to some downside risks to India’s growth in the current fiscal. Recent financial sector turmoil in the US and Europe could reduce appetite for emerging market assets, trigger another bout of capital flight and put pressure on the Indian rupee, it said, adding that tighter global financial conditions could also weigh on the risk appetite for private investment in India.