India to remain fastest-growing major economy

While retaining the GDP growth forecast for FY24 and FY25 at 6.6 per cent and 6.7 per cent respectively, the World Bank estimated the country to clock 6.8 per cent growth in FY26. This is slower than 7 per cent and 8.2 per cent growth achieved in FY22 and FY23 respectively.

This moderation is mainly due to a slowdown in investment from a high base. However, investment growth is still expected to be stronger than previously envisaged and remain robust over the forecast period, with strong public investment accompanied by private investment. Private consumption growth is expected to benefit from a recovery of agricultural production and declining inflation.

Growth in industrial activity, including manufacturing and construction, was stronger than expected, alongside resilient services activity, which helped offset a slowdown in agricultural production partly caused by monsoons. Growth of domestic demand remained robust, with a surge in investment, including in infrastructure, offsetting a moderation of consumption growth as post-pandemic pent-up demand eased.

However, government consumption is projected to grow only slowly, in line with the government’s aim of reducing current expenditure relative to GDP. In India, the fiscal deficit is projected to shrink relative to GDP, partly because of increased revenues generated by the authorities’ efforts to broaden the tax base. The South Asian region’s fiscal imbalances will slowly improve, although, apart from India, a reduction of fiscal deficits is expected to be smaller. Nevertheless, government debt levels will remain elevated in the region and debt-service costs are projected to be heightened in countries with the largest debt levels—including Bhutan, India, and Maldives.

According to the World Bank, inflation in the South Asian region has gradually declined from the peaks reached in mid-2022 as inflation in India has kept within the Reserve Bank’s target range of 2 to 6 per cent since September 2023.