The World Bank has maintained India's growth forecast at 6.3% for FY24, attributing the steady economic performance to significant investment, particularly in public infrastructure. However, on Tuesday, it revised the nation's inflation projection upwards to 5.9% from the previous estimate of 5.2%.
In the first quarter of FY24, India's economy experienced robust growth of 7.8% due to strong domestic demand. Despite this, the World Bank anticipates a slowing pace in domestic demand as post-pandemic pent-up demand begins to fade and high food price inflation constrains consumption, particularly among low-income households.
The multilateral lender further highlighted that the inflation rate is expected to spike more than anticipated at 5.9% in FY24, nearing the upper limit of the Reserve Bank of India's (RBI) target range of 2-6%. This forecasted increase in inflation is attributed to abnormal rainfall during the monsoon months, which led to a sharp rise in food prices in July 2023. Although these prices eased somewhat in August, they are expected to continue impacting headline inflation throughout the fiscal year.
The World Bank also noted concerns around oil prices, which while lower than peaks observed in 2022, remain a significant factor for consideration. India's inflation marginally eased to 6.8% in August from a 15-month high of 7.4% in July. Experts suggest it may further ease in September.
The RBI's policy of withdrawing accommodation and raising the policy interest rate over the last year has helped control core inflation, which is projected to continue decelerating gradually, according to the World Bank. The RBI's Monetary Policy Committee will make a decision on the policy rate, which has been held at 6.5% since February, later this week.
On the fiscal front, the World Bank projects a slight improvement, with the general government deficit expected to decline to 8.7% in FY24 from 9% of the GDP in the previous fiscal year. However, it also pointed out that subsidy programs, introduced ahead of the 2024 general elections, could impact the fiscal roadmap. The government announced a Rs 200 ($2.68) subsidy on LPG cylinders for all households last month.
The World Bank forecasts public debt to stabilize around 83% of GDP in FY24 and then fall to 82.4% in FY25.
These projections align with those from other institutions. S&P Global (NYSE: SPGI ) Ratings recently kept India's growth at 6%, while revising inflation numbers sharply. Fitch Ratings also maintained India's growth forecast, while the Asian Development Bank revised its forecast downwards to 6.3%. The RBI forecasts average growth of 6.5% in FY24.
Looking ahead, the World Bank expects growth to rise slightly to 6.4% in FY25 and inflation to fall to 4.7%.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
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