India needs to grow closer to 8% to become a high-income country: World Bank

In its India Development Update released Tuesday, the World Bank retained the Gross Domestic Product (GDP) growth forecast from its previous update at 6.3 per cent for the financial year 2023-24. This is 20 basis points lower than the 6.5 per cent growth estimate by the government and the Reserve Bank of India (RBI) for FY24.

The World Bank, however, raised the inflation forecast for FY24 to 5.9 per cent from 5.2 per cent in its update, citing risks from the monsoon deficiency and its evolving impact on prices, El Niño phenomena, and global supply chain disruptions.

On the fiscal side, the World Bank India said India may see a “surprise on the upside” in its fiscal deficit target of 5.9 per cent of the GDP in this financial year, supported by revenue mobilisation and buoyancy in the Goods and Services Tax (GST) collections.

Global headwinds will continue to persist and intensify due to high global interest rates, geopolitical tensions, and sluggish global demand. “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,” Kouame said.

The World Bank in its report stated that jobs for women and in the rural areas continue to lag jobs for men. The urban worker population ratio (WPR) showed a marginal improvement in Q4 FY23 relative to Q4 FY22, increasing by 1.4 and 2.3 percentage points for males and females, respectively. However, the increase in WPR for women is primarily driven by an increase in the share of women in unpaid work to 11.7 per cent, a 1.5 percentage point increase since Q4 FY22, it said.

“At a headline level, it is about increasing jobs overall. The quantity of jobs is also important as well as the quality. India has aspirations to become a high-income country by 2047, which will naturally require a faster pace of growth. It’s growing at 6-6.5 per cent now. In order to become a high income country it needs to grow closer to 8 per cent. And you can’t get there if a large part of your workforce — females — are not participating. For India to go from 6 per cent to 8 per cent, and become a high-income country, you need to get the female participation rate higher,” Dhruv Sharma, Senior Economist, World Bank and lead author of the report said.

The quality of women’s jobs in India is much lower than that of men, and the share of regular salaried employment for women in urban areas is declining, the World Bank report said.

There is significant variation in female labor force participation across Indian states, with the relationship with per capita income not fully consistent with the U-shaped pattern. “Hilly states like Himachal Pradesh, Meghalaya, and Nagaland have higher female LFPR relative to the per capita income, in contrast, more industrialised states such as Maharashtra, Gujarat, and Haryana have lower female LFPR despite their higher per capita income,” it said.

Kouame said there is data showing that there has been a lot of investment in women and girls’ education in India. “India has done really well…in fact, today, there are more girls in universities than boys. So India has done very well by educating girls and women. It is now time to use their skills and their brain power to power the economy towards becoming a high-income country,” he said.

The Bank expects fiscal consolidation to continue in FY24 with the central government fiscal deficit projected to continue to decline to 5.9 per cent of the GDP from 6.4 per cent last fiscal. Public debt is expected to stabilise at 83 per cent of the GDP, it said.

When asked if a fiscal impact could be seen due to the elections, Kouame said he sees “almost zero risk” of fiscal slippages and the Indian government is moving in the right direction with respect to the fiscal deficit target. “We are not building into our forecasts a lot of volatility in fiscal policy due to the elections. We are not envisaging a relaxation of the government’s stated fiscal consolidation path…states have to maintain their fiscal deficit at less than 3 per cent. These dole outs, if they happen, will happen at the state level. And the fact that states have to maintain their deficit below 3 per cent (of the GSDP), will constrain those risks. So, personally, I see almost zero risk of fiscal slippages overall in India this time due to the elections,” he said.

“Our estimate for this year is consistent with the government’s estimate. What may well happen, is that going forward with growth dynamics, with buoyancy of GST – which, by the way, is doing very well – with revenue mobilisation, maybe there will be a surprise on the upside. And in any case, the government is really determined to contain (its own) consumption while pushing for investment,” he added.