Why in News?

The World Bank (WB) revised its forecast for India's GDP growth to 7% for FY25 from 6.6% previously, citing increases in household real estate investments and investments in infrastructure.

What’s in Today’s Article?

• Highlights of the WB’s Forecast on the Indian Economy
• Opportunities and Challenges for the Indian Economy

Highlights of the WB’s Forecast on the Indian Economy:

• GDP growth: India was the fastest-growing major economy at 8.2% last fiscal and is expected to grow at 7% this fiscal year and 6.7% in FY26.
• Industrial growth: It is expected to slow to 7.3% in FY26 compared to 7.6% in FY25. Industrial growth has recovered to 9.5% in FY24 after Covid-19 related disruptions.
• Gross Fixed Capital Formation (GFCF): GFCF is expected to slow to 7.8% in FY25 compared to 9.0% in FY24. The GFCF growth rate stood at 6.6% in FY23.
• Service sector growth: Amid a globally weakening IT investment climate, the service sector growth is also expected to slip to 7.4% in FY25 and to 7.1 per cent in FY26, compared to 7.6 per cent in FY24.
• Agricultural growth: It is expected to register a sharp jump to 4.1% in FY25, compared to 1.4% in FY24.
• Export-Import: The World Bank predicted 7.2% growth in the exports of goods and services during FY25 compared to FY24. The growth of imports is expected to be 4.1% in FY25 compared to 10.9% in FY24.

Opportunities and Challenges for the Indian Economy:

• Export sector:
  • India can expand its export portfolio by increasing its exports of electronics, green technology items, textiles, garments, and footwear in addition to its strengths in IT, business services, and pharmaceuticals.
  • However, India has been losing ground to rivals in the labour-intensive apparel and footwear sectors.
  • India’s share in global apparel exports fell from 4% in 2018 to 3% in 2022 due to increased production costs and decreasing productivity.
  • Meanwhile, countries like Bangladesh, Vietnam, Poland, Germany, and France have managed to increase their global export share in major job-creating sectors by up to 2% between 2015 to 2022.
• Trade barriers:
  • The global trade landscape has witnessed increased protectionism in recent years. The post-pandemic reconfiguration of global value chains has created opportunities for India.
  • India has boosted its competitiveness through the National Logistics Policy (NLP) and digital initiatives that are reducing trade costs.
  • However, tariff and non-tariff barriers have increased and could limit the potential for trade-focused investments.
• Current account deficit (CAD):
  • The CAD stood at 0.7% in FY24 compared to 2% in FY23.
  • Foreign exchange reserves reached an all-time high of $670.1 billion (in August 2023), equivalent to 11 months' worth of spending, thanks to a falling CAD and robust inflows from foreign portfolio investments.
  • However, the WB predicted a steady widening of the CAD from 1.1% in FY25 to 1.2% in FY26 and 1.6% in FY27.
• Jobs in India:
  • While India is the fastest-growing major economy, urban youth unemployment remains high at 17%.
  • Jobs in India generated directly and indirectly connected to international trade have declined over the last decade.
  • The country has missed out on the export opportunity presented by China’s withdrawal from labour-intensive manufacturing sectors.
  • To create more trade-related jobs, India can integrate more deeply into global value chains, which will also create opportunities for innovation and productivity growth.