World Bank report on India: These are the top 10 highlights

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Indian economy may witness slower growth at 6.3 percent in the current fiscal year 2023-24 compared to 7.2 logged in the previous year, the World Bank said in its latest update. This is even as India will remain one of the fastest-growing global economies, it said.

These are some highlights from the report:

India will still be among the fastest-growing economies
India’s 6.3 percent growth will come in the context of waning growth globally.

Key reasons for slowing Indian growth

The expected growth slowdown is due to the high base effect.

The base effect refers to the phenomenon that makes it more difficult to achieve subsequent growth after strong growth previously. For instance, if a company’s revenue goes from 10 to 20 during a period, it has increased its top line by 10 units to achieve 100 percent growth. But in the next period, it will need to add 20 units to its top line the next time to achieve the same 100 percent growth.

Companies and economies that grow very fast in a particular period sometimes struggle with growth in the next due to the high base effect.

Inflation to remain elevated

The World Bank projected inflation to average 5.9 percent in FY24, just a tad under the RBI’s 6.0 percent comfort zone of 4% +/- 2%. Consumer inflation remains high despite the central bank’s rate hike battle over the last year, even as analysts will continue to watch out for upside risks from a boil in the oil.

Fiscal deficit to fall

According to the World Bank, India’s fiscal deficit will decline to 8.7 percent in FY24 from 9 percent of GDP in FY23. The fiscal deficit is the gap between what the government earns and spends. The deficit of most countries took a hit after COVID, thanks to expansionary programs but all economies including India are trying to rein in their deficit over the next few years.

In the Union Budget, the government projected to bring down the fiscal deficit to 5.9 percent of the gross domestic product (GDP) in the current 2023-24 financial year.  It aims to pursue a broad path of fiscal consolidation to attain a level of fiscal deficit lower than 4.5 percent of GDP by FY 2025-26.

Fiscal consolidation could be delayed

The plan to bring down the fiscal deficit over the next few years could be hit as the government expands its food subsidy programs to limit the impact of high prices ahead of general elections in 2024, the World Bank said. However, no relaxation of the fiscal consolidation path is seen because of the upcoming elections.

Current account deficit to narrow

The current account balance will shrink to a deficit of 1.4 percent of GDP in FY24, led by a fall in the merchandise trade deficit. A current account deficit occurs when a country spends more on imports, investment income, and direct transfers abroad than it earns from exports and income from abroad. Generally, India makes a surplus in its services trade but it is not enough to offset the deficit in the goods trade where imports are consistently more than exports.

Public debt should stabilise

India’s public debt will continue to remain stable near 83 percent of GDP, only falling to 82.4 percent by FY25/26, the World Bank said. A large part of India’s debt is held domestically, which means currency risks continue to remain low. Still, India would like to reduce the overall debt, which increased following the spending incurred during COVID.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow