India's Economic Growth Forecast: A Positive Outlook for FY25 and Beyond

The World Bank has revised its growth forecast for India, upgrading it to 7% for the financial year 2024-25, up from an earlier estimate of 6.6%. This upward adjustment reflects the strong performance of the Indian economy, which was the fastest-growing major economy in FY24 with an impressive growth rate of 8.2%. This revision suggests a robust economic trajectory for India, highlighting the country's resilience in the face of global economic challenges.

India's Economic Resilience in FY24

India’s economy grew at a remarkable rate of 8.2% in FY24, making it the fastest-growing major economy worldwide. This growth was driven by strong domestic consumption, robust government spending on infrastructure, and a resilient services sector, which together helped to offset some global economic slowdowns. For instance, the services sector, which includes IT and financial services, grew by 9.4% in FY24, supported by increased global demand for digital and remote services.

In addition, manufacturing showed considerable growth, benefiting from the "Make in India" initiative and increased foreign direct investment (FDI). According to the Department for Promotion of Industry and Internal Trade (DPIIT), India attracted FDI inflows of $83.5 billion in FY24, reflecting investor confidence in the country’s economic potential.

World Bank’s Revised Forecast for FY25

The World Bank’s revised forecast of 7% for FY25 is grounded in several factors that point toward sustained economic momentum:

1. Strong Domestic Demand: India's domestic demand is expected to remain robust, driven by a growing middle class and increasing consumer spending. The World Bank projects that household consumption will grow by 6.8% in FY25, up from 6.4% in FY24.

2. Private Investment Growth: Increased private sector investment is anticipated, bolstered by government initiatives such as the Production-Linked Incentive (PLI) schemes, which aim to boost manufacturing and exports. The World Bank forecasts a 7.1% increase in private investment for FY25.

3. Government Spending: Continued government expenditure on infrastructure projects is set to provide a significant boost to the economy. The Indian government has allocated $1.4 trillion for infrastructure development over the next five years, which is expected to drive growth in sectors such as construction and real estate.

Medium-Term Outlook: FY26 and FY27

The medium-term outlook for India remains positive, with the World Bank forecasting continued strong growth through FY26 and FY27. Here are the key factors supporting this outlook:

Continued Infrastructure Development: The government's focus on infrastructure development, particularly in transportation and digital infrastructure, is expected to continue driving economic growth. Projects such as the Bharatmala road network and the expansion of smart cities are likely to have a multiplier effect on the economy.

Digital Transformation: India's rapid adoption of digital technologies is expected to boost productivity across various sectors. The World Bank estimates that digital adoption could add 1.5 percentage points to India’s GDP growth annually over the next decade.

Rising Exports: Export growth is anticipated to be a significant driver of economic expansion, with the World Bank projecting a 7.5% increase in merchandise exports for FY25. The services sector, particularly IT and business process management (BPM), is also expected to see strong export growth.

Managing Inflation and Current Account Deficit

Despite the positive outlook, managing inflation and the current account deficit (CAD) will be crucial for sustaining economic growth. Inflation, which has been a concern, is expected to moderate, with the RBI targeting a range of 4-6%. The World Bank projects that inflation will average around 5% in FY25, down from 5.4% in FY24, due to favorable base effects and proactive monetary policy measures.

The CAD is expected to remain within a manageable range of 1-1.6% of GDP. This is important for maintaining macroeconomic stability, especially given potential external shocks. The World Bank’s forecast suggests that a stable CAD, coupled with robust foreign exchange reserves—currently at $598 billion—will help buffer against global financial market volatility.

Reducing Poverty and Inequality

Economic growth is essential for reducing poverty and inequality in India. The World Bank notes that declining inflation and continued economic expansion are likely to reduce extreme poverty, with projections showing a decrease from 9.1% in 2024 to 7.9% in 2025. Government initiatives, such as the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and targeted subsidies, have played a vital role in supporting vulnerable populations.

Additionally, programs aimed at financial inclusion, such as the Pradhan Mantri Jan Dhan Yojana (PMJDY), have helped bring more people into the formal banking system, reducing inequality and enhancing economic security.

Global Context and India’s Position

India's economic performance stands out in a global context, particularly when compared to other major economies facing slower growth due to factors like geopolitical tensions, supply chain disruptions, and high inflation. The global economy is projected to grow at 2.9% in 2024, significantly lower than India's forecasted growth rate. 

India’s robust growth, supported by sound macroeconomic policies and structural reforms, positions it as a key player in the global economic landscape. The country is likely to attract significant foreign investment, particularly in technology, manufacturing, and renewable energy, which will further bolster economic growth and create jobs.

Conclusion

The World Bank’s upgraded GDP forecast to 7% for FY25 reflects the strength and resilience of India’s economy. With strong growth expected through FY26 and FY27, India is well-positioned to continue as one of the world’s fastest-growing major economies. However, it is crucial to manage inflation, maintain a stable current account deficit, and address social inequalities to ensure sustainable and inclusive growth.

By continuing to implement structural reforms, investing in infrastructure, and leveraging its demographic dividend, India can ensure long-term economic stability and prosperity, improving the lives of its citizens and contributing to global economic growth.