India’s economic growth rate will slow to 6.6 per cent in next financial year from an expected 6.9 per cent in 2022-23, the World Bank said in its latest economic update. India however is expected to be the fastest growing economy of the seven largest emerging-market and developing economies (EMDEs), it said.
The growth rate of 6.9 per cent in current fiscal year (April 2022 to March 2023) compares with 8.7 per cent in the previous year. For 2024-25, the growth rate is projected at 6.1 per cent. “The slowdown in the global economy and rising uncertainty will weigh on export and investment growth,” it said.
The government has increased infrastructure spending and various business facilitation measures. However, it will crowd-in private investment and support the expansion of manufacturing capacity. “Growth is projected to slow, to 6.6 per cent in FY2023/24 before falling back toward its potential rate of just above 6 per cent,” it said.
The GDP expanded by 9.7 per cent on an annual basis in the first half of fiscal year 2022-23, reflecting strong private consumption and fixed investment growth. Consumer inflation in most of the last year was above the Reserve Bank’s upper tolerance limit of 6 per cent, prompting the policy rate to be raised by 2.25 percentage points between May and December.
India’s goods trade deficit has more than doubled since 2019, and was USD 24 billion in November, with deficits for crude petroleum and petroleum products (USD 7.6 billion) and other commodities (for example, ores and minerals at USD 4.2 billion) accounting for the widening.
The World Bank said India used its international reserves (at USD 550 billion in November, or 16 per cent of GDP) to curb excess exchange rate volatility helping to limit the rupee depreciation, and its sovereign spread has remained broadly stable at 1.4 per cent in December, similar to average levels in the five years before the pandemic.
“Monetary and fiscal tightening over the forecast horizon is expected to be less pronounced than in much of the rest of the region, as adequate policy buffers have provided breathing room to support the ongoing recovery and boost public investment,” it said.