World Bank cuts India’s growth forecast to 6.3%

- Strong domestic demand

- Robust consumer spending

- Higher public investment

- However, consumer spending by low-income groups weaker

New Delhi: India’s GDP is expected to moderate to 6.3 per cent, as against earlier estimate of 6.6 per cent, due to moderation in consumption in FY24, the World Bank said in a report on Tuesday.

Growth is likely to be constrained by slower consumption growth and challenging external conditions, the World Bank said in its India Development Update. “Rising borrowing costs and slower income growth will weigh on private consumption growth and government consumption is projected to grow at a slower pace due to the withdrawal of pandemic-related fiscal support measures,” it said.

The report projects Current Account Deficit to moderate to 2.1 per cent in FY24, as against three per cent in the current financial year.

With regard to inflation, the World Bank report expects it to ease to 5.2 per cent, against 6.6 per cent in the current fiscal. Inflation is elevated, but pressures are moderating as food and fuel prices moderate, the World Bank India's biannual flagship publication, said. It, however, remains above the upper threshold of the Reserve Bank of India's (RBI) target range of 2-6 percent.Since May 2022 the RBI's Monetary Policy Committee (MPC) has hiked the repo rate by 250 basis points, it said.

Pointing to areas of concern, the report said manufacturing and construction sectors shed a lot of jobs during the Covid pandemic, but added that labour market outcomes have improved post-pandemic.

"Strong domestic demand, underpinned by robust consumer spending by higher-income groups and higher public investment, was the main growth driver. However, consumer spending by low-income groups was weak due to slow income growth," it said.

It also pointed to some downside risks to India's growth in the current fiscal. Recent financial sector turmoil in the US and Europe could reduce appetite for emerging market assets, trigger another bout of capital flight and put pressure on the Indian rupee, it said, adding that tighter global financial conditions could also weigh on the risk appetite for private investment in India.