World Bank Upgrades India's Growth Forecast to 7% for FY25, Highlights Resilience

The World Bank's latest India Development Update revises India's growth forecast to 7% for FY25, emphasizing India's resilience amid global economic challenges. Significant investments in public infrastructure and household real estate, along with manufacturing and services sector performance, are key growth drivers. Urban unemployment shows improvement, yet youth rates remain high.

The World Bank has revised India's growth forecast for fiscal year 2025 from 6.6% to 7%, according to the latest India Development Update released on Tuesday. This upward revision highlights India's resilience in the face of challenging global economic conditions.

Titled 'India's Trade Opportunities in a Changing Global Context,' the report underscores India's status as the fastest-growing major economy, recording an 8.2% growth rate in FY23/24. This surge was driven by substantial public infrastructure investments and a rise in household real estate investments. On the supply side, a thriving manufacturing sector, which grew by 9.9%, and resilient services activity compensated for the agriculture sector's underperformance.

Urban unemployment rates have seen gradual improvement, particularly for female workers, whose unemployment rate dropped to 8.5% in early FY24/25. However, urban youth unemployment remains high at 17%. Externally, India's foreign exchange reserves hit a record USD 670.1 billion in early August—covering over 11 months of imports—supported by a narrowing current account deficit and strong foreign portfolio investment inflows. Despite global economic headwinds, the World Bank's outlook for India remains positive, with growth projected to maintain a robust 7% in FY24/25 and continue into FY26/27.

The report also forecasts a decrease in India's debt-to-GDP ratio from 83.9% in FY23/24 to 82% by FY26/27, along with a stable current account deficit of 1-1.6% of GDP. It emphasizes the crucial role of trade in sustaining India's economic growth. While the global trade environment is becoming more protectionist, the post-pandemic reconfiguration of global value chains presents significant opportunities for India.

India is enhancing its competitiveness through the National Logistics Policy and various digital initiatives aimed at reducing trade costs. However, rising tariff and non-tariff barriers could hinder trade-focused investments. Auguste Tano Kouame, the World Bank's Country Director for India, stated, 'India's robust growth prospects and declining inflation will help alleviate extreme poverty. To further boost growth, India must harness its global trade potential.'

Kouame added, 'Besides IT, business services, and pharma, India can diversify its exports to include textiles, apparel, footwear, electronics, and green technology products.' To achieve the ambitious target of USD 1 trillion in merchandise exports by 2030, the IDU recommends reducing trade costs, lowering trade barriers, and deepening trade integration.

The report notes that India's share in global apparel exports declined from 4% in 2018 to 3% in 2022 due to rising production costs and falling productivity. Senior Economists Nora Dihel and Ran Li, co-authors of the report, remarked, 'India must integrate more deeply into global value chains to create trade-related jobs and opportunities for innovation and productivity growth.'

(With inputs from agencies.)