Ahead of the presentation of full Union Budget for Fiscal Year 2024-25, India’s economic planners got good news from the International Monetary Fund (IMF) which revised the country’s growth forecast for current year by 20 bps to 7 per cent. This is higher than World Bank’s projection but lower than Reserve Bank of India’s estimate.
In its latest update of ‘World Economic Outlook,’ the agency said that the forecast for growth in emerging markets and developing economies is revised upward; the projected increase is powered by stronger activity in Asia, particularly China and India. “The forecast for growth in India has been revised upward, to 7 per cent, this year, with the change reflecting carryover from upward revisions to growth in 2023 and improved prospects for private consumption, particularly in rural areas,” the agency said.
For China, the growth forecast is revised upward to 5 per cent in 2024, primarily on account of a rebound in private consumption and strong exports in the first quarter. In 2025, GDP is projected to slow to 4.5 per cent and continue to decelerate over the medium term to 3.3 per cent by 2029 because of headwinds from ageing and slowing productivity growth.
Meanwhile, the agency has not changed the global forecast. The update, titled, “The Global Economy in a Sticky Spot,” retained the forecast at 3.2 per cent in 2024 and 3.3 per cent in 2025. However, varied momentum in activity at the turn of the year has somewhat narrowed the output divergence across economies as cyclical factors wane and activity becomes better aligned with its potential. Services price inflation is holding up progress on disinflation, which is complicating monetary policy normalisation.
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Last month, the World Bank retained India’s growth forecast at 6.6 per cent. The RBI revised the estimate by 20 bps to 7.2 per cent. According to the World Bank, India will remain the fastest-growing of the world’s largest economies, although its pace of expansion is expected to moderate. After a high growth rate in FY2023/24, growth of 6.7 per cent per year, on average, is projected for the three fiscal years beginning in FY2024/25.
“India’s economy has been buoyed by strong domestic demand, with a surge in investment, and robust services activity. It is projected to grow an average of 6.7 percent per fiscal year from 2024 through 2026—making South Asia the world’s fastest-growing region,” it added.
In its monetary policy review, the RBI said that the forecast of above normal south-west monsoon by the India Meteorological Department (IMD) is expected to boost kharif production and replenish the reservoir levels. Strengthening agricultural sector activity is expected to boost rural consumption. On the other hand, sustained buoyancy in service activity should continue to support urban consumption. The healthy balance sheets of banks and corporates, the government’s continued thrust on capex, high capacity utilisation, and business optimism augur well for investment activity. External demand should get a fillip from improving prospects of global trade. Taking all these factors into consideration, real GDP growth for 2024-25 is projected at 7.2 per cent, with the risks evenly balanced.