World Bank and ADB Issue Lower Growth Forecasts for India in FY24, Predicting 6.3% and 6.4% Growth Respectively
The World Bank and the Asian Development Bank (ADB) have lowered their economic growth forecasts for India for the fiscal year 2023-24 (FY24).
The World Bank revised its forecast down by 30 bps to 6.3%, citing global slowdown spillovers and slower consumption growth as the reasons.
The ADB, on the other hand, revised its forecast down by 80 bps to 6.4% and cited risks from both global and domestic factors.
The ADB mentioned that if global conditions don’t worsen as expected, higher global demand could spur growth in India, but geopolitical tensions could exert further downward pressure on global demand.
The World Bank warned that consumer spending by lower-income groups is expected to be hit in FY24 due to slower growth in their incomes.
The ADB is more optimistic about domestic consumption growth, citing a robust labor market, rising consumer confidence, and a higher tax rebate and income threshold for tax exemption announced in the most recent budget.
The World Bank predicts that private investment demand will recover in the second half of FY24, but this is contingent on global growth recovery and lower borrowing costs.
The ADB believes that private investment growth is likely to be lower in FY24 due to tightened monetary policy, high lending rates, global uncertainty, and moderating optimism on business conditions.
Both the World Bank and the ADB predict that retail inflation will moderate in FY24, with the World Bank projecting it to be 5.2% and the ADB predicting it to be 5.0%, assuming moderation in oil and food prices.
The World Bank expects core inflation to remain elevated but on a downward trajectory as the impact of monetary policy tightening starts to materialize from mid-FY24. The ADB predicts that monetary policy will become more accommodative in FY25.
Both the World Bank and the ADB expect India’s current account deficit (CAD) to narrow to 2.1% and 2.2% of GDP, respectively, due to a substantial decline in the merchandise trade deficit.
The ADB predicts that with rising global uncertainty and interest rates, foreign direct investment and portfolio inflow are likely to remain weak in FY24 before picking up slightly in FY25. However, India’s overall balance of payments will remain strong.
The World Bank says that India’s elevated public debt-to-GDP ratio is stable but subject to risks arising from macroeconomic uncertainty, while the ADB maintains that India’s public debt is on a sustainable path. The World Bank also notes that faster consolidation would be needed to reduce the debt burden over the medium-term if nominal GDP growth were to moderate more than currently projected.
