India continues to show resilience against the backdrop of a challenging global environment, the World Bank said on Tuesday.
The country's gross domestic product is forecast to grow at 6.3% for the current financial year, according to its half-yearly India Development Update.
The expected moderation is mainly due to challenging external conditions and waning pent-up demand. However, service-sector activity is expected to remain strong with growth of 7.4%, and investment growth is also projected to remain robust at 8.9%.
Global headwinds will continue to persist and intensify due to high global interest rates, geopolitical tensions, and sluggish global demand. As a result, global economic growth is also set to slow down over the medium term against the background of these combined factors, according to the World Bank.
"An adverse global environment will continue to pose challenges in the short term," Auguste Tano Kouame, the World Bank's country director in India, said. "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."
Despite significant global challenges, India remains one of the fastest-growing major economies. It grew by 7.2% in the last fiscal, led by robust domestic demand, strong public-infrastructure investment, and a strengthening financial sector.
Adverse weather conditions contributed to a spike in inflation in recent months, the report said. Inflation is expected to decrease gradually as food prices normalise and government measures increase the supply of key commodities.
"While the spike in headline inflation may temporarily constrain consumption, we project a moderation," Dhruv Sharma, senior economist at the World Bank and the lead author of the report, said. "Overall conditions will remain conducive for private investment."
The World Bank expects fiscal consolidation to continue in FY24, with the central government's fiscal deficit projected to continue to decline from 6.4% to 5.9% of GDP. Public debt is expected to stabilise at 83% of GDP. On the external front, the current account deficit is expected to narrow to 1.4% of GDP, and it will be adequately financed by foreign investment flows and supported by large foreign reserves.
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