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

The World Bank has revised India's FY25 GDP growth forecast to 7% from 6.6%, citing strong performance in public infrastructure investment, increased real estate investment, a robust manufacturing sector, and a resilient services sector.

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

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