WB ups India's FY24 inflation forecast to 5.9%, growth estimate unchanged

World Bank also said that it expects fiscal consolidation to continue in FY24, with the central government fiscal deficit projected to continue to decline from 6.4% to 5.9%

The World Bank on Tuesday stated that India's Gross Domestic Product (GDP) is projected to grow at 6.3 per cent in FY24. In its "India Development Update" for October, the institution maintained its growth forecast for the country, having previously reduced it from 6.6 per cent in April.

According to the World Bank, India is expected to grow at 6.4 per cent in FY25 and 6.5 in FY26. 

However, it raised India's inflation projection from 5.2 per cent in its April update to 5.9 per cent. For FY25, the inflation has been projected at 4.7 per cent. In FY26, it is expected to be 4.1 per cent. 

The World Bank pointed out that recent spikes in inflation were due to adverse weather conditions and that it will moderate, supported by declining food prices.

India's retail inflation escalated to 7.8 per cent in July, driven by a surge in prices of food staples such as wheat and rice. This was an increase from 4.87 per cent in June. Although the inflation rate decreased to 6.83 per cent in August, it remained above the Reserve Bank of India's upper tolerance level.

"Inflation is likely to decrease gradually as food prices stabilise and government interventions augment the supply of essential commodities," the report added.

"While the recent rise in headline inflation may temporarily dampen consumption, we expect moderation. Overall, conditions are projected to remain favourable for private investment," stated Dhruv Sharma, senior economist at the World Bank and lead author of the report.

According to the World Bank, the Indian economy is anticipated to show resilience despite global uncertainties. The service sector in the country is predicted to sustain strong growth at 7.4 per cent, while investment growth is expected to remain robust at 8.9 per cent.

According to the report, potential challenges could stem from "challenging external conditions" and "waning pent-up demand". 

"An adverse global environment will continue to pose challenges in the short term," remarked Auguste Tano Kouame, the World Bank's country director in India. "Utilising public spending to attract more private investments will create favourable conditions, enabling India to capitalise on global opportunities in the future and thereby achieve higher growth."

The World Bank also foresees fiscal consolidation continuing into FY24, with the central government's fiscal deficit expected to decline from 6.4 per cent to 5.9 per cent of GDP.

"Public debt is projected to stabilise at 83 per cent of GDP. On the external front, the current account deficit is likely to narrow to 1.4 per cent of GDP and will be adequately financed by flows of foreign investment, bolstered by large foreign reserves," the "India Development Update" further elaborated.