Despite a challenging global environment, the Indian economy is thriving, according to the World Bank’s latest report, *India’s Trade Opportunities in a Changing Global Context*. The update reveals that India remains the fastest-growing major economy, expanding at an impressive 8.2 percent in FY23/24. This growth surge has been driven by significant public infrastructure investments and a rise in household spending on real estate. On the supply side, the economy benefited from a dynamic manufacturing sector, which grew by 9.9 percent, and robust services activity that mitigated slower performance in agriculture. Urban unemployment has gradually improved since the pandemic, with female urban unemployment falling to 8.5 percent in early FY24/25, though youth unemployment remains high at 17 percent. Additionally, strong foreign portfolio investments and a reduced current account deficit have propelled foreign exchange reserves to a record $670.1 billion as of early August, covering over 11 months of imports.
Looking ahead, the World Bank projects a positive medium-term outlook for India. Growth is expected to reach 7 percent in FY24/25 and remain strong through FY25/26 and FY26/27. With continued revenue growth and fiscal consolidation, the debt-to-GDP ratio is forecast to decrease from 83.9 percent in FY23/24 to 82 percent by FY26/27. The current account deficit is anticipated to stabilize around 1-1.6 percent of GDP through FY26/27.
The report also underscores the importance of trade in sustaining growth. Recent years have seen a rise in global protectionism and a reshaping of global value chains due to the pandemic. This shift presents new opportunities for India, which has enhanced its competitiveness through the National Logistics Policy and digital initiatives aimed at reducing trade costs. However, the report cautions that rising tariff and non-tariff barriers could pose challenges to trade-focused investments.
Auguste Tano Kouame, World Bank’s Country Director in India, highlights that India’s strong growth prospects, combined with declining inflation, will help in alleviating extreme poverty. To further boost growth, he suggests leveraging India’s trade potential. Beyond its strengths in IT, business services, and pharmaceuticals, India should diversify its exports to include textiles, apparel, footwear, electronics, and green technology products. The report recommends a three-pronged strategy to achieve the $1 trillion merchandise export goal: further reducing trade costs, lowering trade barriers, and deepening trade integration.
