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According to a report by the World Bank, India’s GDP growth is predicted to moderate to 6.3% in FY24 because of a reduction in consumption caused by slow income. The World Bank has adjusted its projection for India’s economic expansion in the ongoing fiscal year from 6.6%.
The Reserve Bank of India has increased interest rates by 250 basis points since May 2022 in an attempt to control inflation. As per the World Bank, “Rising borrowing costs and slower income growth will weigh on private consumption growth. Government consumption is projected to grow at a slower pace due to the withdrawal of pandemic-related fiscal support measures.”
As per the World Bank’s estimation, the growth rate for the last fiscal year was 6.9%. The organization also predicted that the current account deficit for the ongoing fiscal year would contract to 2.1% of the gross domestic product from the previous year’s estimated 3%. This is attributed to the strong exports of services and a reduction in the merchandise trade deficit.
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World Bank economist Dhruv Sharma has stated that the spillover from the recent financial market instability in the United States and Europe poses a potential threat to short-term investment inflows in emerging markets, including India. However, experts and economists anticipate that India’s services exports, which reached an all-time high in the October-December quarter, will provide some protection to the economy from external risks. This is because the slowing global economy is likely to affect the country’s merchandise exports.
A Reuters report has revealed that India’s service exports are not solely dependent on IT services but also include highly profitable areas like consulting and research and development. According to data released by the Reserve Bank of India (RBI), the country’s services exports surged by 24.5% year-on-year in the October-December 2022 period. It has reached a record high of $83.4 billion for the quarter.
The category’s imports were subtracted to calculate the services surplus, which experienced a substantial 39.21% increase, reaching an all-time high of $38.7 billion. As a result of this and a decrease in the merchandise trade deficit, the current account deficit shrank beyond anticipated levels to $18.2 billion, equivalent to 2.2% of GDP.
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According to Sunil Talati, the chairman of the Services Export Promotion Council, the services exports are expected to exceed $375 billion by March 2024, compared to the $320-350 billion recorded in the year ending March 2023. Talati also predicts that services exports will surpass goods exports by March 2025. The latest RBI data shows that merchandise exports between October and December amounted to $105.6 billion.
At the end of February, the fiscal deficit of the central government amounted to 82.8% of the target for the entire year. For the fiscal year 2022-23, the government aims to maintain the deficit at ₹17.55 lakh crore or 6.4% of GDP.
