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World Bank Raises India’s GDP Growth Forecast

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:

  1. Highlights of the World Bank’s Forecast on the Indian Economy
  2. 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.

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