The World Bank has revised its projections for the Indian economy, expecting it to grow at a rate of 7.5 per cent in 2024, marking a notable upward adjustment of 1.2 per cent from earlier estimates.
This announcement comes as part of the World Bank's latest South Asia Development Update released on Tuesday.
According to the report, the overall growth in South Asia is anticipated to be robust, with a projected growth rate of 6.0 per cent in 2024. This growth is primarily attributed to the strong performance of the Indian economy, along with recoveries observed in Pakistan and Sri Lanka.
India, being a significant contributor to the region's economy, is expected to drive much of the growth momentum. The report forecasts output growth in India to reach 7.5% in FY23/24, before settling at 6.6% over the medium term. The service and industry sectors are expected to maintain their robust performance, sustaining the growth trajectory.
Bangladesh is also expected to witness a rise in output by 5.7% in FY24/25. However, economic activity in the country might face constraints due to high inflation and restrictions on trade and foreign exchange.
Pakistan, after experiencing a contraction in FY22/23, is poised to rebound with an expected growth rate of 2.3% in FY24/25, driven by improvements in business confidence. Similarly, Sri Lanka is forecasted to witness a strengthening of output growth to 2.5% in 2025, supported by modest recoveries in reserves, remittances, and tourism.
Martin Raiser, the World Bank Vice President for South Asia, highlighted the region's bright growth prospects in the short term but cautioned about fragile fiscal positions and increasing climate shocks. Raiser emphasized the need for policies aimed at boosting private investment and strengthening employment growth to enhance resilience.
Franziska Ohnsorge, World Bank Chief Economist for South Asia, pointed out that South Asia is currently not fully capitalizing on its demographic dividend, identifying it as a missed opportunity. Ohnsorge suggested that if the region employed a larger share of its working-age population, its output could be significantly higher.
In the case of India, recent economic activity has surpassed expectations, with a growth rate of 8.4% in 2023Q4, driven by rapid increases in investment and government consumption. The country's composite purchasing managers index (PMI) stood at 60.6 in February, well above the global average, indicating a robust expansion.
Despite challenges such as elevated food price inflation and weak harvests due to El Niño, India has maintained inflation within the Reserve Bank of India's target range. Financial indicators also demonstrate resilience, with domestic credit issuance to the commercial sector growing at a rapid pace and nonperforming-loan ratios decreasing.
Looking ahead, the World Bank projects a slowdown in India's growth rate to 6.6% in FY2024/25, mainly due to a deceleration in investment from its elevated pace in the previous year. However, growth in services and industry is expected to remain robust, supported by strong construction and real estate activity.
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