Context:
The World Bank has updated its economic growth projection for India in fiscal year 2025, increasing the GDP growth rate to 7% from the earlier forecast of 6.6%. This upward revision is attributed to significant growth in household real estate investments and heightened investments in infrastructure.
Relevance:
GS III: Indian Economy
Dimensions of the Article:
- Highlights of the World Bank’s Forecast on the Indian Economy
- Opportunities and Challenges for the Indian Economy
Highlights of the World Bank’s Forecast on the Indian Economy
Economic Growth Trends
- Current Growth: India, being the fastest-growing major economy, achieved an 8.2% growth rate last fiscal year and is projected to grow at 7% this fiscal year and 6.7% in FY26.
- Industrial Sector: Industrial growth is anticipated to decelerate slightly from 7.6% in FY25 to 7.3% in FY26, recovering from a post-COVID high of 9.5% in FY24.
- Capital Formation: Gross Fixed Capital Formation (GFCF) is expected to slow down to 7.8% in FY25 from 9.0% in FY24, having been at 6.6% in FY23.
- Service Sector: Amid a global dip in IT investment, growth in the service sector is expected to decrease from 7.6% in FY24 to 7.4% in FY25 and further to 7.1% in FY26.
- Agriculture: Agricultural growth is set to see a significant rise to 4.1% in FY25 from 1.4% in FY24.
- Trade: Export growth is forecasted at 7.2% in FY25, with import growth slowing to 4.1% from 10.9% in FY24.
Opportunities and Challenges for the Indian Economy
Export Sector
- Expansion: There’s potential to enhance exports in electronics, green technology, textiles, garments, and footwear alongside traditional strengths in IT, business services, and pharmaceuticals.
- Competitive Setbacks: India is losing ground in labor-intensive sectors like apparel and footwear, with its global market share in apparel exports declining from 4% in 2018 to 3% in 2022.
- Global Standing: Countries such as Bangladesh, Vietnam, Poland, Germany, and France have increased their global export shares by up to 2% from 2015 to 2022.
Trade Barriers
- Protectionism: The global market has seen a rise in protectionism, which poses both challenges and opportunities for India.
- Competitiveness: Initiatives like the National Logistics Policy have helped reduce trade costs, enhancing India’s market competitiveness.
- Investment Hurdles: Increased tariffs and non-tariff barriers could impede trade-focused investments.
Current Account Deficit (CAD)
- Recent Trends: The CAD was relatively low at 0.7% in FY24 but is projected to widen progressively from 1.1% in FY25 to 1.6% in FY27.
- Foreign Reserves: India’s foreign exchange reserves hit a peak of $670.1 billion in August 2023, providing substantial financial cushioning.
Employment
- Youth Unemployment: Despite being a fast-growing economy, urban youth unemployment remains high at 17%.
- Trade Jobs: There has been a decline in jobs directly and indirectly related to international trade.
- Opportunity Loss: The exit of China from certain manufacturing sectors presents a missed opportunity for India to fill these gaps.
- Strategic Integration: Deeper integration into global value chains could foster job creation and spur innovation and productivity growth.
