World Bank revises India’s GDP growth estimate to 7% for FY25 from 6.6%

The World Bank’s projection indicated that industrial growth is expected to slow to 7.3 per cent in FY26 compared to 7.6 per cent in FY25. Industrial growth has recovered to 9.5 per cent in FY24 after Covid-19 related disruptions. The bank also projected a decline in investments in the economy as captured by Gross Fixed Capital Formation (GFCF).

According to the World Bank’s projections, GFCF is expected to slow to 7.8 per cent in FY25 compared to 9.0 per cent in FY24. The GFCF growth rate stood at 6.6 per cent in FY23, the data showed.

Amid a globally weakening IT investment climate, the service sector growth is also expected to slip to 7.4 per cent in FY25 and to 7.1 per cent in FY26, compared to 7.6 per cent in FY24, the World Bank predicted. However, agricultural growth is expected to register a sharp jump to 4.1 per cent in FY25, compared to 1.4 per cent in FY24.

As far as trade is concerned, the World Bank stated that the global trade landscape has witnessed increased protectionism in recent years.

“The post-pandemic reconfiguration of global value chains has created opportunities for India. India has boosted its competitiveness through the National Logistics Policy (NLP) and digital initiatives that are reducing trade costs. However, it also notes that tariff and non-tariff barriers have increased and could limit the potential for trade-focused investments,” the World Bank said.

The World Bank predicted 7.2 per cent growth in the exports of goods and services during FY25 compared to FY24. However, the data showed that the growth rate will remain at 7.2 per cent in FY26 before rising to 7.9 per cent in FY27.

The growth of imports is expected to be 4.1 per cent in FY25 compared to 10.9 per cent in FY24. Imports are expected to subsequently increase to 6.3 per cent in FY26 and 7.3 per cent in FY27, according to the data shared by the World Bank.

“In addition to IT, business services, and pharma where it excels, India can diversify its export basket with increased exports in textiles, apparel, and footwear sectors, as well as electronics and green technology products,” said Auguste Tano Kouame, World Bank’s Country Director in India.

However, India has been ceding ground to competitors in the labour-intensive apparel and footwear sectors. Nora Dihel and Ran Li, Senior Economists and co-authors of the report, said that with rising production costs and declining productivity, India’s share in global apparel exports has decreased from 4 per cent in 2018 to 3 per cent in 2022.

“To create more trade-related jobs, India can integrate more deeply into global value chains, which will also create opportunities for innovation and productivity growth,” Dihel and Li said in a statement.

Meanwhile, the World Bank predicted a steady widening of the current account deficit from 1.1 per cent in FY25 to 1.2 per cent in FY26 and 1.6 per cent in FY27. The current account deficit stood at 0.7 per cent in FY24 compared to 2 per cent in FY23.

“With a narrowing current account deficit and strong foreign portfolio investment inflows, foreign exchange reserves reached an all-time high of $670.1 billion in early August, equivalent to over 11 months’ cover,” the World Bank said.