World Bank raises India's FY25 GDP growth forecast to 7% from 6.6% earlier

Country has made success despite adversity, says report

The World Bank on Thursday raised its India's growth forecast for the current financial year to 7 per cent, from an earlier estimate to 6.6 per cent, helped by government spending on infrastructure.

“Growth was boosted by public infrastructure investment and an upswing in household investments in real estate. On the supply side, it was supported by a buoyant manufacturing sector, which grew by 9.9 per cent, and resilient services activity, which compensated for underperformance in agriculture,” said the World Bank in the India Development Update report.

Auguste Kouame, World Bank’s country director for India, said the country is becoming more dynamic in a challenging environment and it does not face the risk of falling in the middle income trap if it continues its policies and reforms.

“India has had success despite adversity. I don’t see the growth slowing down to the point it is trapped,” he said.

India grew at 8.2 per cent in FY 2023-24, becoming the fastest-growing major economy in the world. Growth slowed to a 15-month low of 6.7 per cent in April-June 2024-25, mainly due to poor performance of the agriculture and services sectors, government data showed on Friday.

Earlier, the International Monetary Fund raised India’s gross domestic product (GDP) growth forecast for FY25 to 7 per cent. Moody’s Ratings has also raised India’s GDP growth projection for calendar year 2024 to 7.2 per cent from 6.8 per cent earlier.

The World Bank expects India’s medium-term outlook to remain positive, with a GDP growth projection of 6.7 per cent for FY26 and FY27. Its report noted that while the urban labor market had improved gradually since the peak of the pandemic, youth unemployment remained elevated at around 17 percent.

Kouame said India's Budget announcements for decisions addressing unemployment were a good step but other things needed to happen.

“Is it just a policy or a structural issue?...India should try to conquer less advanced, lower end markets with goods that may be more job creating. China did not just try to export to the US but to the whole world,” said Kouame.

The World Bank report highlighted that India's Direct employment related to exports has fallen from a peak of 9.5 per cent of total domestic employment in 2012 to 6.5 percent in 2020.

World Bank economist Aurelien Kruse said that the intention of the government's production linked incentive scheme is good but there is only so much it can do given the scale of the Indian economy. “To achieve scale and systemic changes you have to go to the root of the problem,” he said.

The World Bank report forecast inflation (consumer price index) of 4.5 per cent in FY25 declining to 4.1 per cent and 4 per cent in FY26 and FY27, respectively.

“The monetary policy should target both core and headline inflation,” said Kruse.