World Bank Sees India GDP Growing At 7% This Fiscal

India's GDP growth is expected to remain strong at 7% in fiscal 2025, according to the latest forecasts by the World Bank. This is despite a subdued external environment, and the dissipation of post-pandemic rebound effects. External risks to the outlook are significant, the World Bank stated in its bi-annual India Development Update.

In particular, geopolitical tensions could put pressure on commodity prices and critical supply chains, and resurgent inflation could still keep global interest rates “higher for longer”, it said.

"These risks notwithstanding, medium-term prospects are positive."

The significant expansion of public investment in recent years should crowd in corporate investments and a recovery of agriculture and declining inflation should boost private consumption growth, the World bank said. "Under this baseline scenario, robust growth and declining inflation are expected to reduce extreme and moderate poverty."

The overall fiscal deficit is projected to continue to fall, helping to reduce public debt gradually.

The current account deficit is expected to remain at around 1-1.6% of GDP up to fiscal 2027, supported by robust services exports and a continued expansion of medium and high technology goods exports. It is expected to be adequately financed by foreign investment flows, and foreign exchange reserves will continue to provide ample cover against any adverse external development.

India needs to diversify its exports and increase its participation in Global Value Chains, the World bank said. Over the past decades, despite rapid overall economic growth, India's trade in goods and services has decreased as a percentage of GDP and India’s participation in GVCs has fallen, it said. Exports are also relatively concentrated in goods and services that tend not to be labour-intensive.

As a result, trade-jobs linkages are not fully exploited, it said. A key factor behind this decline is the increase in import tariffs on key intermediary inputs, which has raised production costs and made producers less competitive in international markets. To achieve its ambitious export target and maximise the job creation potential of trade, India must diversify its export basket and enter new markets.

India's current trade policy stance features both liberalising measures and rising protectionism, the World Bank said. The implementation of the National Logistics Policy and digital initiatives aimed at reducing logistics costs are proactive steps towards enhancing trade facilitation and competitiveness. However, a resurgence in protectionist measures, including increased tariff and non-tariff barriers, is restricting India's trade openness, it said.

A focused strategy toward achieving the $1 trillion export target would include measures to reduce trade costs further, lower trade barriers, and revisit FTAs and regional integration options, it added.