World Bank Revises India’s GDP Growth Estimate

What’s in today’s article?

• Why in News?
• Highlights of the WB’s Forecast on the Indian Economy
• Opportunities and Challenges for the Indian Economy

Why in News?

The World Bank (WB) revised its forecast for India's GDP growth to 7% for FY25 from 6.6% previously, citing increases in household real estate investments and investments in infrastructure.

Highlights of the WB’s Forecast on the Indian Economy:

• GDP growth: India was the fastest-growing major economy at 8.2% last fiscal and is expected to grow at 7% this fiscal year and 6.7% in FY26.
• Industrial growth: It is expected to slow to 7.3% in FY26 compared to 7.6% in FY25. Industrial growth has recovered to 9.5% in FY24 after Covid-19 related disruptions.
• Gross Fixed Capital Formation (GFCF): GFCF is expected to slow to 7.8% in FY25 compared to 9.0% in FY24. The GFCF growth rate stood at 6.6% in FY23.
• Service sector growth: Amid a globally weakening IT investment climate, the service sector growth is also expected to slip to 7.4% in FY25 and to 7.1 per cent in FY26, compared to 7.6 per cent in FY24.
• Agricultural growth: It is expected to register a sharp jump to 4.1% in FY25, compared to 1.4% in FY24.
• Export-Import: The World Bank predicted 7.2% growth in the exports of goods and services during FY25 compared to FY24. The growth of imports is expected to be 4.1% in FY25 compared to 10.9% in FY24.

Opportunities and Challenges for the Indian Economy:

• Export sector:
  • India can expand its export portfolio by increasing its exports of electronics, green technology items, textiles, garments, and footwear in addition to its strengths in IT, business services, and pharmaceuticals.
  • However, India has been losing ground to rivals in the labour-intensive apparel and footwear sectors.
  • India’s share in global apparel exports fell from 4% in 2018 to 3% in 2022 due to increased production costs and decreasing productivity.
  • Meanwhile, countries like Bangladesh, Vietnam, Poland, Germany, and France have managed to increase their global export share in major job-creating sectors by up to 2% between 2015 to 2022.
• Trade barriers:
  • The global trade landscape has witnessed increased protectionism in recent years. The post-pandemic reconfiguration of global value chains has created opportunities for India.
  • India has boosted its competitiveness through the National Logistics Policy (NLP) and digital initiatives that are reducing trade costs.
  • However, tariff and non-tariff barriers have increased and could limit the potential for trade-focused investments.
• Current account deficit (CAD):
  • The CAD stood at 0.7% in FY24 compared to 2% in FY23.
  • Foreign exchange reserves reached an all-time high of $670.1 billion (in August 2023), equivalent to 11 months' worth of spending, thanks to a falling CAD and robust inflows from foreign portfolio investments.
  • However, the WB predicted a steady widening of the CAD from 1.1% in FY25 to 1.2% in FY26 and 1.6% in FY27.
• Jobs in India:
  • While India is the fastest-growing major economy, urban youth unemployment remains high at 17%.
  • Jobs in India generated directly and indirectly connected to international trade have declined over the last decade.
  • The country has missed out on the export opportunity presented by China’s withdrawal from labour-intensive manufacturing sectors.
  • To create more trade-related jobs, India can integrate more deeply into global value chains, which will also create opportunities for innovation and productivity growth.

Q.1. What is the National Logistics Policy (NLP)?

India's NLP is a transformative initiative launched by the government (in 2022) to increase efficiency across the logistics and supply chain sector. It aims to decrease the overall logistics cost from an estimated 13-14% of the GDP to a competitive 8%, aligning India with global standards.

Q.2. Why is the growth of labour-intensive sectors important for India?

According to the International Labour Organization (ILO), there is “no alternative” for India to have growth led by labour-intensive manufacturing at least for the next 10 years to absorb seven-eight million youths who will join the labour force annually.

Source: World Bank pegs India’s growth at 7% in FY25 | IE | IE