World Bank’s Latest Report Highlights India’s Economic Growth and Trade Challenges

It further said, “On the supply side, growth was primarily driven by a rebound in manufacturing, which grew by 9.9 per cent, after a contraction of 2.2 per cent in FY22/23,” adding that the “manufacturing expansion was primarily supported by declining input costs, as global oil prices moderated.”

By contrast, the report said, “agriculture growth fell from 4.7 per cent in FY22/23 to 1.4 per cent in FY23/24, majorly due to below normal and uneven rainfall caused by El Nino in the second half of the fiscal year.”

Economic Growth and Labour Market Insights

India’s economic performance has been bolstered by significant public infrastructure investment and a surge in household investment in real estate. The buoyant manufacturing sector, which grew by 9.9 per cent, and resilient services activity have been pivotal in supporting overall growth, even as agriculture has lagged. The rapid economic expansion has had a positive impact on the labour market. Urban unemployment rates, particularly for women, have improved, dropping to 8.5 per cent in early FY24/25. However, youth unemployment remains a concern, standing at 17 per cent.

Yet, the report said that the “urban labour market improved between January and December 2023, particularly for women and youth. In Q3 FY23/24, the urban unemployment rate declined to its lowest levels since Q2 FY17/18, although youth unemployment remained high at 16.5 per cent.”

The Reserve Bank of India (RBI) has maintained its policy rate at 6.5 per cent to manage inflation, which declined from 6.7 per cent in FY22/23 to 5.4 per cent in FY23/24. The moderation in inflation, coupled with a narrowing current account deficit, has contributed to a record-high foreign exchange reserve of $670.1 billion as of early August 2024.

Medium-Term Outlook and Fiscal Projections

Looking ahead, the World Bank forecasts that India’s growth will moderate to 7 per cent in FY24/25 but remain robust through FY26/27. This optimistic outlook is supported by ongoing fiscal consolidation, which is expected to reduce the debt-to-GDP ratio from 83.9 per cent in FY23/24 to 82 per cent by FY26/27. The current account deficit is projected to stabilize at around 1-1.6 per cent of GDP during this period, reflecting a strong balance of services exports and continued inflows of foreign portfolio investment.

Trade Challenges and Opportunities

The World Bank’s report highlights the critical role of trade in sustaining India’s growth trajectory. Despite recent advances in competitiveness through the National Logistics Policy and digital initiatives, India faces rising protectionism globally, including increased tariff and non-tariff barriers. These challenges have constrained the potential for trade-focused investments.

“India’s robust growth prospects, along with declining inflation, will help reduce extreme poverty,” said Auguste Tano Kouame, World Bank’s Country Director for India. “To further boost growth, India must harness its global trade potential. While it excels in IT, business services, and pharmaceuticals, there is substantial opportunity for diversifying its export basket into textiles, apparel, footwear, electronics, and green technologies.”