World Bank Projects Robust Growth for Indian Economy in 2024

World Bank : The World Bank has revised its growth projection for the Indian economy, expecting it to expand by 7.5% in 2024. This marks an increase of 1.2% from its earlier forecast for the same period.

Regional Growth Outlook

In its latest South Asia Development Update released on Tuesday, the World Bank anticipates strong growth in South Asia, with a projected growth rate of 6.0% in 2024. This increase in growth is mainly credited to the strong performance of the Indian economy, as well as the recovery seen in Pakistan and Sri Lanka.

India's Contribution to Regional Growth

India, being the largest economy in the region, plays a significant role in driving growth. The World Bank forecasts India's output growth to reach 7.5% in FY23/24, before stabilizing at 6.6% over the medium term. This growth is expected to be fueled by resilient activity in the services and industrial sectors.

Challenges in Other South Asian Economies

Bangladesh is projected to experience a rise in output by 5.7% in FY24/25, although high inflation and trade restrictions pose challenges to economic activity. Pakistan, after facing contraction in FY22/23, is expected to witness growth of 2.3% in FY24/25 due to improved business confidence. Sri Lanka is expected to see a strengthening of output growth to 2.5% in 2025, supported by modest recoveries in reserves, remittances, and tourism.

Concerns and Recommendations

Martin Raiser, World Bank Vice President for South Asia, expressed concerns over fragile fiscal positions and increasing climate shocks in the region. He emphasized the need for policies to boost private investment and enhance employment growth to make growth more resilient. Franziska Ohnsorge, World Bank Chief Economist for South Asia, highlighted the missed opportunity in fully capitalizing on the region's demographic dividend, suggesting that better employment utilization could increase output by 16%.

Economic Overview of India

In India, economic activity exceeded expectations in the fourth quarter of 2023, with a growth rate of 8.4% compared to the previous year. The expansion was supported by significant increases in investment and government consumption.

Inflation and Financial Conditions

Inflation in India has remained within the Reserve Bank of India's target range since mid-2023. Financial conditions have remained accommodative, with domestic credit issuance growing by 14% year-on-year in December 2023. The nonperforming-loan ratio has fallen to 3.2%, indicating improved financial soundness.

Foreign Investment and Reserves

Foreign Direct Investment (FDI) as a share of GDP declined in 2023, but foreign portfolio investment inflows rebounded in FY2023/24. This contributed to an 8% increase in foreign reserves, reaching a level sufficient to cover about 11 months of imports by January 2024.

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The World Bank's report provides valuable insights into the economic trajectory of India and the South Asian region, highlighting areas of growth potential and challenges that need to be addressed for sustained development.