The World Bank (WB) lowered its fiscal year 2023-24 (FY24) growth projection for India to 6.3% in its “India Development Update” (Spring 2023 Edition), down from 6.6% in December 2022 (FY23).
- It further added that slower consumption growth and unfavourable external conditions are anticipated to restrain India’s GDP growth.
The World Bank projected a 6.9% growth in FY23.
India Development Update (IDU)
- The IDU reports on recent economic developments in India and reframes them in a global context.
- The IDU updates the outlook for India’s economy based on the developments and policy changes over the period.
Key Observations from the IDU 2023:
i.According to the latest IDU 2023, increased borrowing costs and weaker income growth are likely to adversely affect private consumption growth.
- Due to the removal of pandemic-related fiscal assistance measures, government consumption is projected to rise more gradually.
- Despite some initial indications of a slowdown in the second half of FY23, India’s economy remained robust.
ii.The report also states that, while headline inflation remains high, it is expected to fall to 5.2% in FY24, down from 6.6% in the current fiscal year (FY23).
iii.The Reserve Bank of India (RBI) increased the policy interest rate in order to end accommodative measures to control inflation.
- Since May 2022, the RBI has increased interest rates by 250 basis points in an effort to control inflation.
iv.According to the update, India’s financial sector remains strong, driven by improvements in asset quality and robust private-sector credit growth.
v.Furthermore, the Government of India (GoI) is projected to achieve its fiscal deficit target of 5.9% of Gross Domestic Product (GDP) in FY24.
- When coupled with the consolidation of state government deficits, the Union Government deficit is also predicted to decrease along with the reduction of the Current Account Deficit (CAD).
vi.Due to strong service exports and a decreasing goods trade deficit, CAD is anticipated to reduce to 2.1% of GDP in FY24 from an estimated 3% in FY23.
India’s Services Exports
i.According to RBI data, India’s services exports increased 24.5% year on year (Y-o-Y) in October-December 2022, reaching a record of USD 83.4 billion during the quarter.
ii.The services surplus, which excludes any imports in the sector, increased 39.21% to a record of USD 38.7 billion.
iii.Exports of services are expected to grow over USD 375 billion by March 2024, up from USD 320-350 billion in the fiscal year ending March 2023.
iv.By March 2025, services exports are anticipated to outnumber goods exports.
v.According to the most recent RBI data, October-December 2022 merchandise exports amounted to USD 105.6 billion.
vi.Meanwhile, the fiscal deficit of the Union Government reached 82.8% of the full-year target at the end of February 2023.
vii.The GoI anticipates a deficit of Rs. 17.55 lakh crore, or 6.4% of GDP, for the full fiscal year 2022–23.
Recent Related News:
i.In January 2023, The State Bank of India (SBI) in its Ecowrap report has estimated India’s fiscal deficit for FY 2023-24 (FY24) at around Rs 17.95 lakh crore or 6% of GDP (Gross Domestic Product). This will result in a fiscal consolidation of 40 bps from FY23.
ii.In FY23, the fiscal deficit is expected to come to Rs 17.5 lakh crore. However, higher nominal GDP growth (15.4%) estimates will help in keeping the fiscal deficit at 6.4% of the GDP.
About the World Bank (WB):
The International Development Association (IDA) and the International Bank for Reconstruction and Development (IBRD) collectively make up the World Bank (WB).
President (WB Group) – David Robert Malpass
Establishment – 1944
Headquarters – Washington D.C, United States (US)
Members – 189 member countries
