In India, the World Bank said, economic activity surprised on the upside in 2023Q4, with growth of 8.4% from a year ago. File.
| Photo Credit: AP

The Indian economy is projected to grow at 7.5% in 2024, the World Bank has said, revising its earlier projections for the same period by 1.2%.

Overall, growth in South Asia is expected to be strong at 6.0% in 2024, driven mainly by robust growth in India and recoveries in Pakistan and Sri Lanka, the World Bank said in its latest South Asia Development Update on April 2.

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According to the report, South Asia is expected to remain the fastest-growing region in the world for the next two years, with growth projected to be 6.1% in 2025.

“In India, which accounts for the bulk of the region’s economy, output growth is expected to reach 7.5% in FY23/24 before returning to 6.6% over the medium term, with activity in services and industry expected to remain robust,” the bank said in its report. In Bangladesh, output is expected to rise by 5.7% in FY24/25, with high inflation and restrictions on trade and foreign exchange constraining economic activity.

Following the contraction in FY22/23, Pakistan’s economy is expected to grow by 2.3% in FY24/25 as business confidence improves. In Sri Lanka, output growth is expected to strengthen to 2.5% in 2025, with modest recoveries in reserves, remittances, and tourism.

“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,” said Martin Raiser, World Bank Vice President for South Asia. “To make growth more resilient, countries need to adopt policies to boost private investment and strengthen employment growth,” he said.

“South Asia is failing right now to fully capitalize on its demographic dividend. This is a missed opportunity,” said Franziska Ohnsorge, World Bank Chief Economist for South Asia.

If the region employed as large a share of the working-age population as other emerging markets and developing economies, its output could be 16% higher, Ohnsorge said.

In India, the World Bank said, economic activity surprised on the upside in 2023Q4, with growth of 8.4% from a year ago. “The expansion was supported by rapid increases in investment and government consumption. More recent survey data point to continued strong performance,” it said.

In February, India’s composite purchasing managers index (PMI) stood at 60.6, well above the global average of 52.1 (a value above 50 indicates expansion). Growth in FY2023/24 is estimated to have exceeded earlier forecasts, it said.

According to the report, in India, inflation has remained within the Reserve Bank of India’s 2–6% target range since a spike in mid-2023, and the policy rate has remained unchanged since February 2023. Food price inflation has been elevated, partly reflecting a weak harvest due to El Niño, it said.

Financial conditions in India have remained accommodative. Domestic credit issuance to the commercial sector (including public and private borrowers) grew by 14% (year-on-year) in December 2023, the fastest pace since 2013. Financial soundness indicators continued to improve. The nonperforming-loan ratio fell to 3.2% last year, well below its recent peak, in March 2018, of about 11%.

Regulatory capital totalled 17% of bank assets in the second quarter of 2023, surpassing both regulatory requirements and peer averages. FDI as a share of GDP fell in 2023, but a rebound in foreign portfolio investment inflows in FY2023/24 contributed to foreign reserves rising 8% in the year to January 2024, reaching a level sufficient to cover about 11 months of imports, the World Bank report said.

“In India, output growth is projected to reach 7.5 percent in FY2023/24 on the back of robust growth in Q3 of FY2023/24. Growth is expected to moderate to 6.6 percent in FY2024/25 before picking up in subsequent years as a decade of robust public investment yields growth dividends,” the bank said.

The expected slowdown in growth between FY2023/24 and FY2024/25 mainly reflects a deceleration in investment from its elevated pace in the previous year, it said. “Growth in services and industry is expected to remain robust, the latter aided by strong construction and real estate activity. Inflationary pressures are expected to subside, creating more policy space for easing financial conditions,” it said.

“Over the medium term, the fiscal deficit and government debt are projected to decline, supported by robust output growth and consolidation efforts by the central government,” the report said.

“Indian GDP data are not seasonally adjusted, and they are also revised multiple times before they are finalised three years after the close of the relevant financial year,” the Finance Ministry said. File
| Photo Credit: PTI

The Finance Ministry on September 15 scotched aspersions cast by “certain sections” on the credibility of Indian GDP data, which showed a 7.8% uptick in the first quarter of this year, stressing that Indian GDP data is not seasonally adjusted and is finalised three years later so “it is wrong to look at the underlying economic activity based on GDP indicators alone”.

“Ideally, critics would have done well to look at several other growth indicators to see if other data match their conclusions. Purchasing Managers’ Indices indicate that the manufacturing and services sectors are growing. Bank credit growth is in double digits. Consumption is improving, and the government has vigorously ramped up capital expenditure,” the Ministry said in a long post on social media platform X, formerly known as Twitter.

“Higher frequency data must be relied upon to form a view of the strength of the economic activity,” the Ministry said, adding that “if anything, India’s growth numbers might understate the reality because manufacturing growth indicated by the Index of Industrial Production (IIP) is far lower than what manufacturing companies are reporting”.

“Indian GDP data are not seasonally adjusted, and they are also revised multiple times before they are finalised three years after the close of the relevant financial year… Many international agencies have revised up their growth forecast for FY24 (financial year 2023-24) after the first quarter data for FY24 was released. They would not have done so if the underlying economic activity was weak,” the Ministry asserted.

The Ministry also called out references to nominal GDP growth being lower than real GDP growth as “a new bogey being spread to discredit the GDP numbers and indicate that underlying economic activity is quite weak” and said both do not stand up to scrutiny.

“India’s GDP deflator is dominated by the Wholesale Price Index (WPI) [which] peaked in the first quarter of 2022-23 due to the oil and food price increases in the wake of the war in Ukraine and supply-side disruptions. Prices began to come down from August 2022 onwards. Hence, WPI is now contracting year on year. It will soon pass once the statistical base effect disappears,” the Ministry statement noted.

“If inflation were higher, critics would argue that nominal GDP growth is much higher because of inflation and that there was little underlying activity. MoSPI calculates quarterly GVA in real terms first, and then, using the deflator, nominal values are obtained. No wonder nominal growth rates have slowed, with WPI contracting in recent months. This will normalise in the coming months,” the statement pointed out.

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“India’s real GDP growth was 7.8% year on year in the first quarter of 2023-24. This is as per the Income or Production Approach. As per the expenditure approach, it would have been lower. So, a balancing figure – statistical discrepancy – is added to the expenditure approach estimate. These discrepancies are both positive and negative. Over time, they wash out,” the Ministry pointed out.

“In fact, in FY23 and FY22, the ‘statistical discrepancy’ was negative. In other words, growth as per the Income Approach was lower. Using the expenditure approach, it would have been higher than the 7.2% reported for FY23 and higher than the 9.1% reported for FY22,” it emphasised.

“India consistently uses the Income Side approach for calculating GDP growth for various reasons. It does not switch between the two approaches depending on which one is favourable,” the Ministry underlined.

“So, arguing that nominal GDP growth is more reliable because India has issues with its calculation of GDP deflator is to invent an argument where none exists. This is just to justify the liking for nominal GDP growth because it has been moderating in recent quarters after the high growth in the first fiscal quarter of FY23. In other words, critics want to latch on to anything that does not paint the Indian economy in a good light,” the Ministry concluded.

India observed its 77th Independence Day this year. This analysis measures India’s relative performance in the past 76 years compared to other countries across four parameters — GDP per capita, Human Development Index (HDI), Infant Mortality Rate (IMR) and women’s participation in Parliament. Owing to technological advancement and infrastructural development, India and other countries have made remarkable progress in the past seven and half decades. So it becomes imperative to look at where India stood compared to other nations around the time of independence and where it stands now among them.

India is compared with these countries: BRICS (Brazil, Russia, China, South Africa), G-7 countries (Canada, France, Germany, Italy, the United Kingdom, and the United States), emerging economies (Argentina, Chile, Colombia, Egypt, Hungary, Indonesia, Iran, Malaysia, Mexico, the Philippines, Poland, Saudi Arabia, Thailand, Turkey, and the United Arab Emirates) and the Indian subcontinent (Bangladesh, Bhutan, Nepal, Pakistan and Sri Lanka).

Chart 1 | The chart compares GDP per capita (in $) of 26 countries between the 1960s and 2022.

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India’s GDP per capita ranking of 24 out of 26 nations analysed remained unchanged between the 1960s and 2022. While Indonesia and Nepal were lagging behind India in the 1960s, Pakistan and Nepal were lagging behind in 2022.

Chart 2 | The chart compares the Human Development Index of 31 countries between 1950 and 2021.

India’s HDI increased by 0.11 points in 1950 to 0.633 in 2021. However, India’s ranking slipped from 26 in 1950 to 29 by 2021. Of the five countries which lagged behind India in 1950, Saudi Arabia, Indonesia and Bangladesh—moved ahead by 2021, with scores of 0.87, 0.7 and 0.66 respectively.

Chart 3 | The chart compares infant mortality rates in 32 countries between 1960-1975 and 2021. 

Between 1960 and 1975, India had the seventh-worst IMR among these 32 nations. In 2021, India regressed four spots and became the third-worst. Of the six countries which were behind India in 1960-75, five (Turkey, Bangladesh, Bhutan, Egypt and Nepal) surpassed India by 2021. However, South Africa regressed.

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Chart 4 | The chart compares the share of women in Parliament in 31 countries between 1997 and 2022. 

Women’s participation in India increased from 7% in 1997-98 to 14.9% in 2022. Over 10 countries were behind India in this indicator in 1997-98. In 2022, only five remain below India.

In case of other indicators like access to electricity and usage of the internet, India has had significant progress. Between 1993 and 2000, only 50% of India’s population had access to electricity. By 2020, this increased to 99% of its population. A majority of the 32 countries considered provided electricity to over 99% of their population by 2020, except for Pakistan, South Africa and Nepal where the share remains below 90%. In 1990, almost no country considered, except for the U.S., had any access to the Internet. But by 2020, India has managed to provide internet access to 43% of its population. While India lags behind 27 countries in this indicator, Bhutan (53.5%) is the only country in the subcontinent that is ranked above India.

In 1960, with a population of 45.05 crore people, India had the second-highest population behind China (66.7 crore). By the end of 2022, India’s population stood at 1.417 billion, surpassing China’s 1.412 billion, making India the most populous country in the world, according to the World Population Review.

Source: World Bank and Our World in Data

vignesh.r@thehindu.co.in and rebecca.varghese@thehindu.co.in

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