India must diversify to hit $1 trillion export target: WB

Chennai: The World Bank has revised India’s growth forecast for FY25 to 7 per cent from 6.7 per cent as estimated in June. In June, the WB had pegged the GDP growth forecast for FY24 and FY25 at 6.6 per cent and 6.7 per cent respectively. It had estimated the country to clock 6.8 per cent growth in FY26.

However, in its latest India Development Update, WB said that growth is forecast to reach 7 per cent in FY25 and remain strong in FY26 and FY27.

The Indian economy continues to grow at a healthy pace despite challenging global conditions. India remained the fastest-growing major economy and grew at a rapid clip of 8.2 per cent in FY24. Growth was boosted by public infrastructure investment and an upswing in household investments in real estate. On the supply side, it was supported by a buoyant manufacturing sector, which grew by 9.9 per cent, and resilient services activity, which compensated for underperformance in agriculture.

With robust revenue growth and further fiscal consolidation, the debt-to-GDP ratio is projected to decline from 83.9 per cent in FY24 to 82 per cent by FY27. The current account deficit is expected to remain at around 1-1.6 per cent of GDP up to FY27.

Female urban unemployment fell to 8.5 per cent in early FY25, although urban youth unemployment remained elevated at 17 per cent. With a narrowing of the current account deficit and strong foreign portfolio investment inflows, foreign exchange reserves reached an all-time high of $670.1 billion in early August.

However, to reach its $1 trillion merchandise exports goal by 2030, India needs to diversify its export basket and leverage global value chains.

Trade plays a critical role in boosting growth. The global trade landscape has witnessed increased protectionism in recent years. The post pandemic reconfiguration of global value chains, triggered by the pandemic, has created opportunities for India. The National Logistics Policy and digital initiatives are reducing trade costs. However, tariff and non-tariff barriers have increased and could limit the potential for trade focused investments.

“India can boost its growth further by harnessing its global trade potential. In addition to IT, business services and pharma where it excels, India can diversify its export basket with increased exports in textiles, apparel, and footwear sectors, as well as electronics and green technology products,” said Auguste Tano Kouame, World Bank's Country Director in India.

The World Bank recommends a three-pronged approach towards achieving the $1 trillion merchandise export target by reducing trade costs further, lowering trade barriers, and deepening trade integration.