The Indian economy is expected to increase by 7.5% in 2024, according to the World Bank, which revised its earlier estimates for the same time by 1.2%.
The World Bank stated in its most recent South Asia Development Update on Tuesday that overall, growth in South Asia is predicted to be high at 6.0% in 2024, driven mostly by robust development in India and recoveries in Pakistan and Sri Lanka.
The analysis projects that, with growth estimated at 6.1% in 2025, South Asia will continue to be the world’s fastest-growing area for the following two years.
“In India, which accounts for the bulk of the region’s economy, output growth is expected to reach 7.5% in FY23/24 before returning to 6.6% over the medium term, with activity in services and industry expected to remain robust,” the lender stated in its study.
With rising inflation and trade and foreign exchange restrictions limiting economic activity, output in Bangladesh is predicted to increase by 5.7% in FY24/25.
Pakistan’s economy, which contracted in FY22–23, is predicted to expand by 2.3% in FY24–25 as business confidence rises. With modest recoveries in reserves, remittances, and tourism, production growth in Sri Lanka is predicted to pick up steam and reach 2.5% by 2025.
“The World Bank Vice President for South Asia, Martin Raiser, stated that while the region’s growth prospects are still promising in the near term, there are concerning signs of impending challenges due to unstable fiscal policies and escalating climate shocks.”
“To make growth more resilient, countries need to adopt policies to boost private investment and strengthen employment growth,” he added.
At the moment, South Asia is unable to take full use of its demographic dividend. The World Bank’s Chief Economist for South Asia, Franziska Ohnsorge, called this a “missed opportunity.”
The region’s output might be 16% higher, according to Ohnsorge, if it utilized the same proportion of the working-age population as other rising markets and developing countries.
India’s economic activity surprised to the upside in 2023Q4, according to the World Bank, growing 8.4% over the previous year. “Investment and government consumption increased quickly, which helped to support the expansion. It stated, “More recent survey data indicate sustained strong performance.
Compared to the global average of 52.1 in February, India’s composite purchasing managers index (PMI) was significantly higher at 60.6 (a score above 50 implies expansion). It stated that growth in FY2023/24 is expected to have surpassed earlier projections.
The article claims that after a peak in mid-2023, India’s inflation has stayed within the Reserve Bank of India’s goal range of 2–6%, and that since February 2023, the policy rate has not moved. El Niño-related crop weakness has contributed to elevated food price inflation, the report stated.
India’s financial situation has continued to be accommodating. December 2023 had the fastest annual growth rate since 2013 in domestic loan issuance to the commercial sector, which includes both public and private borrowers. The financial soundness metrics kept getting better. Relative to its previous peak of over 11% in March 2018, the nonperforming-loan ratio dropped to 3.2% last year.
In the second quarter of 2023, regulatory capital exceeded both peer averages and regulatory standards, accounting for 17% of bank assets. In 2023, foreign direct investment (FDI) as a percentage of GDP decreased. However, in FY2023/24, there was a surge in foreign portfolio investment inflows, which led to an 8% increase in foreign reserves by January 2024. These reserves were enough to cover around 11 months’ worth of imports, according to a World Bank report.
“On the strength of strong growth in FY2023/24’s third quarter, output growth in India is predicted to reach 7.5 percent in FY2023/24. After a decade of strong public investment yielding growth dividends, growth is anticipated to decrease to 6.6 percent in FY2024–2025 before increasing up in the following years, according to the bank.
It stated that the anticipated reduction in growth between FY2023/24 and FY2024/25 is primarily due to a drop in investment from its accelerated pace in the prior year.
“Sustained growth in industry and services is anticipated, with the latter being supported by brisk real estate and building activity. It stated that less inflationary pressures will likely exist, giving policymakers greater room to loosen financial restrictions.
“Over the medium term, the fiscal deficit and government debt are projected to decline, supported by robust output growth and consolidation efforts by the central government,” the report stated.
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