The World Bank projects that India’s economy would grow at the highest rate in South Asia in 2024, at 7.5 percent

The World Bank revised its prior estimates for the same time by 1.2% and said that the Indian GDP will expand by 7.5% in 2024.

According to the World Bank’s most recent South Asia Development Update, which was released on Tuesday, overall growth in South Asia is predicted to be high at 6.0% in 2024, mostly due to strong development in India and recoveries in Pakistan and Sri Lanka.

The analysis projects that South Asia will continue to develop at the highest rate on the globe for the following two years, reaching 6.1% growth in 2025.

The bank said in its study that “output growth is expected to reach 7.5% in FY23/24 before returning to 6.6% over the medium term in India, which accounts for the bulk of the region’s economy, with activity in services and industry expected to remain robust.” Bangladesh’s production is predicted to increase by 5.7% in FY24/25 despite trade and foreign currency restrictions, rising inflation, and other economic constraints.

Pakistan’s economy is predicted to expand by 2.3% in FY24/25 as business confidence picks up after contracting in FY22/23. In 2025, production growth in Sri Lanka is predicted to go up to 2.5 percent, helped by moderate recoveries in reserves, remittances, and tourism.

According to Martin Raiser, Vice President of the World Bank for South Asia, “South Asia’s growth prospects remain bright in the short run, but fragile fiscal positions and increasing climate shocks are dark clouds on the horizon.” “Countries need to adopt policies to boost private investment and strengthen employment growth in order to make growth more resilient,” he said.

At the moment, South Asia is not making the most of its demographic dividend. Franziska Ohnsorge, the chief economist for South Asia at the World Bank, remarked, “This is a missed opportunity.”

According to Ohnsorge, the region’s production might increase by 16% if it utilised the same proportion of the working-age population as other rising markets and developing countries.

According to the World Bank, India’s economy unexpectedly expanded in the fourth quarter of 2023, rising 8.4% over the previous year. Rapid increases in government consumption and investment helped fund the growth. It said, “More recent survey results indicate sustained good performance.

India’s composite purchasing managers index (PMI) was 60.6 in February, much higher than the world average of 52.1 (a score over 50 implies growth). According to estimates, growth in FY2023/24 was more than anticipated.

The study states that after a peak in mid-2023, India’s inflation has been within the Reserve Bank of India’s target range of 2–6%, and the policy rate has not changed since February 2023. El Niño-related crop weakness is partially to blame for the increased inflation of food prices, the report said.

India’s financial environment is still accommodating. In December 2023, domestic loan issuance to the business sector—which includes both public and private borrowers—grew at its quickest rate since 2013 by 14% on an annual basis. Indicators of financial stability kept getting better. The nonperforming-loan ratio dropped to 3.2% last year, a significant decrease from its most recent high of almost 11% in March 2018.

In the second quarter of 2023, regulatory capital amounted to 17% of bank assets, above both peer averages and regulatory standards. The World Bank research said that while foreign direct investment (FDI) as a percentage of GDP decreased in 2023, a surge in inflows of foreign portfolio investments in FY2023/24 helped to propel foreign reserves up 8% in the year ending in January 2024, to a level enough to cover almost 11 months of imports.

Based on strong growth in Q3 of FY2023/24, production growth in India is predicted to reach 7.5 percent in FY2023/24. The bank predicted that growth would slow to 6.6% in FY2024–2025 before increasing in the following years as a result of a decade of strong public investment producing growth dividends.

According to the report, the anticipated decline in growth between FY2023/24 and FY2024/25 is mostly the result of investment slowing down from its high rate in the prior year. The industrial and services sectors are predicted to continue growing well, with the latter being supported by brisk real estate and building activity. It said that there would be less pressure on inflation and greater room for policy to loosen banking restrictions.

According to the research, “strong output growth and central government consolidation efforts are projected to support a decline in the fiscal deficit and government debt over the medium term.”