World Bank raised India's FY25 GDP growth forecast to 7%

Revised Growth Forecast and Economic Performance

• World Bank raises India's FY25 GDP growth forecast to 7% from 6.6%
• India was the fastest-growing major economy in FY24 with 8.2% growth

Strong performance driven by:

• • Public infrastructure investment
  • Increased household investment in real estate
  • Buoyant manufacturing sector (9.9% growth)
  • Resilient services sector

Medium-term outlook remains positive:

• • Projected growth of 6.7% for FY26 and FY27
  • Expects gradual decline in debt-to-GDP ratio from 83.9% in FY24 to 82% by FY27
  • Current account deficit expected to stay within 1-1.6% of GDP up to FY27

Factors Contributing to Economic Resilience

Government initiatives boosting growth:

• • PM Gati Shakti master plan enhancing logistics infrastructure
  • Trade infrastructure for exports scheme
  • Increased tax efficiency and rationalized tax rates improving business environment
• Proactive approach to free trade agreements
• Expansion of Global Capability Centers
• Expected strengthening of the manufacturing sector

Declining inflation:

• • Projected to decrease from 5.4% in FY23-24 to 4.5% in FY24-25
  • Further decline to 4.1% in FY26 and 4% in FY27

Record-high foreign exchange reserves:

• • Reached $670.1 billion in early August
  • Sufficient to cover over 11 months of imports

Challenges and Areas for Improvement

• External risks to the outlook:
  • Geopolitical tensions potentially impacting commodity prices and supply chains
  • Possibility of resurgent inflation keeping global interest rates high
• Labor market concerns:
  • Urban youth unemployment remains elevated at around 17%
  • Gradual improvement in female urban unemployment, decreasing to 8.5%
• Need for export diversification:
  • World Bank emphasizes importance of diversifying export basket
  • Leveraging global value chains to achieve $1 trillion in merchandise exports by 2030
• Recommendations:
  • Focus on increasing exports in textiles, apparel, footwear, electronics, and green technology
  • Monetary policy should target both core and headline inflation