World Bank Keeps India FY24 Growth Forecast At 6.3% On Waning Demand

Relevance: GS3 - Indian Economy and issues relating to planning, mobilization, of resources; GS2 - Important International institutions

(Source: The Hindu, 10/04/2023)

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Why in the news?

• Recently, the World Bank released its India Development Update (IDU), which stated that the Indian economy is expected to grow at a rate of 6.3 percent in the 2023-24 fiscal year. This growth is considered resilient despite challenges like elevated inflation and global uncertainties.
• However, this growth projection is slightly lower than the government and RBI's estimates of 6.5%.

About India Development Update (IDU) Report

• The "India Development Update" is a flagship half-yearly report released by the World Bank that offers an in-depth analysis of the latest economic trends and developments in India.
• This report not only assesses the current economic landscape within India but also places it within the broader global context.
• By examining these economic shifts and considering any noteworthy policy changes that have occurred during the specified period, the India Development Update also offers updated projections and forecasts for India's economic future.

Key Points of the Report

• The report observed that India was one of the fastest growing major economies in the Financial Year 2022-23 at a GDP growth rate of 7.2%.
• This growth rate was the second highest among G20 countries and almost twice the average for emerging market economies.
• India's bank credit growth increased in the first quarter of FY 23-24, by 15.8 per cent, much higher compared to 13.3% in the first quarter of the previous financial year.
• It was stated that service sector activity was expected to remain strong with the growth of 7.4% and investment growth was also projected to remain robust at 8.9%.

South Asia Development Update

• According to the World Bank, South Asia is expected to achieve a growth rate of 5.8% this year, which is higher than any other developing region globally. However, this growth is slower than its pre-pandemic pace and falls short of meeting its development goals.
• The forecast for 2023 has been upgraded by 0.2 percentage points due to stronger-than-expected data in India.

What are the challenges according to the report?

• Inflation Concerns: Inflation forecasts for FY24 have been raised to 5.9% due to factors such as monsoon deficiency, El Niño phenomena, and global supply chain disruptions. Hence, the RBI's Monetary Policy Committee is expected to maintain the repo rate unchanged in light of elevated inflation.
• Global Economic Challenges: Global headwinds, including high global interest rates and geopolitical tensions, are expected to persist and potentially slow down global economic growth in the medium term.
• Fiscal Consolidation: The Bank anticipates ongoing fiscal consolidation in the current year, with the central government's fiscal deficit decreasing from 6.4% to 5.9% of GDP. On the external front, the current account deficit is expected to shrink to 1.4% of GDP.
• Female Labor Force Participation: The low participation rate of women in the workforce compared to other emerging market economies is seen as a challenge in achieving higher growth and transitioning to a high-income country. The quality of women's jobs in India is lower than that of men, and there is significant regional variation in female labor force participation rates.
  • The average level of female labour force participation rate for emerging market economies is around 50% and it is 25% for India.

Recommendations

• India's growth forecast for 2023-24 is expected to moderate due to challenging external conditions, hence to mitigate this, policymakers should continue to monitor and respond to global economic developments.
• There is a need for India to increase its female labor force participation rate, by encouraging more women to participate in the workforce which can contribute significantly to economic growth.
• Policymakers should focus on policies and reforms that encourage private sector investments, which can be a driving force for economic growth.
• With the ongoing rebalancing of the global value chain, India should continue to attract foreign direct investment. Policies that facilitate FDI can contribute to economic growth and technology transfer.

Other estimates

• The Economic Survey pegs India’s growth rate in 2023-24 to be at 6.5%.
• The Reserve Bank of India (RBI)’s forecast for FY 2023-24 is 6.5%.
• The OECD, Asian Development Bank and Fitch projects India’s growth rate similar to World Bank at 6.3%
• S&P Ratings pegged India’s growth at 6%.

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FAQs

MCQ

Question: India’s ranking in the ‘Ease of Doing Business Index’ is sometimes seen in the news. Which of the following has declared that ranking? (UPSC 2016)

(a) Organization for Economic Cooperation and Development (OECD)

(b) World Economic Forum

(c) World Bank

(d) World Trade Organization (WTO)