World Bank pegs Indian economy to grow by 6.6% in FY25

Source: bt/Business Today

Inflationary pressures are expected to subside, creating more policy space for easing financial conditions, says South Asia Development Update.

The World Bank expects the Indian economy to grow by 6.6% in the current fiscal year 2024-25 after an estimated growth of 7.5% last fiscal. The growth forecast for the current fiscal is a marginal increase from its previous estimate of 6.4% that it had put out in January in the Global economics Prospects.

“Growth is expected to moderate to 6.6% in FY2024/25 before picking up in subsequent years as a decade of robust public investment yields growth dividends,” the World Bank said in the latest South Asia Development Update on Tuesday.

The expected slowdown in growth between FY2023/24 and FY2024/25 mainly reflects a deceleration in investment from its elevated pace in the previous year, it further said, adding that growth in services and industry is expected to remain robust, the latter aided by strong construction and real estate activity.

Growth in South Asia is expected to be strong at 6% in 2024, driven mainly by robust growth in India and recoveries in Pakistan and Sri Lanka, the report noted but warned that persistent structural challenges threaten to undermine sustained growth, hindering the region’s ability to create jobs and respond to climate shocks.

“Inflationary pressures are expected to subside, creating more policy space for easing financial conditions. 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 further noted.

Retail inflation has remained within the Reserve Bank of India’s 2–6 % target range since a spike in mid-2023, and the policy rate has remained unchanged since February 2023, it further said, adding that food price inflation has been elevated, partly reflecting a weak harvest due to El Niño.

Consumer price inflation came in at 5.09% in February, almost unchanged from 5.1% in January. Due to the persistently high inflation, analysts expect the Reserve Bank of India to maintain a status quo on the repo rate in meeting of the Monetary Policy Committee that commences on April 3. However, they expect inflation to moderate in coming months due to the base effect as well as softening commodity prices.

The RBI, which will announce the first monetary policy for the current fiscal on April 5, will also provide fresh forecasts for GDP growth and well as retail inflation.  According to official data, the Indian economy grew by 8.4% in the third quarter of the fiscal and is estimated to have grown at 7.6% in FY24. 


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