The Indian economy’s growth is expected to moderate to 6.3 percent in the 2023-2024 fiscal from 7.2 percent in the previous financial year, the World Bank said. “The expected slowdown is mainly due to waning base effects, slowing global growth and domestic price pressures,” the bank said in its latest India development update.

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The bank maintained that India will remain one of the fastest growing major economies in the word.

"An adverse global environment will continue to pose challenges in the short term. Tapping public spending that crowds in more private investments will create more favourable conditions for India to seize global opportunities in the future and thus achieve higher growth," Auguste Tano Kouame, World Bank Country director in India, said.

The bank said that rising food prices will continue to keep headline inflation elevated. The headline inflation is expected to average around 5.9 percent in this financial year because of high food and oil prices. “The Reserve Bank of India's (RBI) policy of withdrawing accommodation and raising the policy interest rate over the last year has helped rein in core inflation, which is expected to continue to decelerate gradually,” the bank said in its report.

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While the domestic demand is expected to remain robust, the pace of growth is likely to slow down in this fiscal. Private consumption growth is likely to taper off as the post-pandemic demand declines and high food inflation reduces budgets, particularly of low income countries. “Government consumption is expected to grow slowly, in line with the central government’s efforts to lower the share of current spending,” the bank said.

The report noted that conditions for private investment remain conducive due to increased capacity utilisation and improvement in balance sheets of banks and the corporate sector. Increased government capital spending on infrastructure is also likely to encourage private investments.

According to the World Bank, India's fiscal deficit is expected to decline to 8.7 percent in the 2023-2024 financial year from 9 percent of the GDP in FY23. “Fiscal consolidation is likely to be led by modest growth in recurrent spending and buoyant revenue growth, making room for investment”, said the report. However, the bank noted that fiscal consolidation could be delayed by subsidy programmes to limit the impact of high food prices ahead of general elections in 2024.

Kouame said the bank does not envisage relaxation of the fiscal consolidation path because of the upcoming elections. Also, the Budget signals that the government is determined to maintain its consolidation path.

The World Bank India director said the bank is not building in fiscal slippages in its forecast as the states have to maintain a fiscal deficit at 3 percent. Kouame added that the bank sees zero risks of fiscal slippage because of elections.

The current account deficit (CAD) is projected to narrow to 1.4 percent of GDP in this fiscal, driven by a decline in the merchandise trade deficit.

Also Read: World Bank cuts growth estimates for East Asia as China falters

First Published:Oct 3, 2023 12:00 PM IST