Indian economy estimated to grow at 6.7 percent in the upcoming two financial years
The recent Global Economic Prospects (GEP) report of the World Bank states that India is estimated to record 6.7 percent of growth in the next financial year 2026 and financial year 2027. It will continue to remain as the fastest growing economies in the world. Following the previous prediction in the month of June, the estimation of growth rate in the financial year 2026 has remained unchanged. While the estimation of growth rate in the financial year 2027 has slightly dip by 0.1 percent.
Growth Projection of World Economy
The World Bank report estimates that the overall world economy will grow by 2.7 percent in both financial year 2025 and financial year 2026. The speed of the growth for both the financial years will be the same as the speed for growth was for the financial year 2024. It is the result of the slow decline in interest rates and inflation levels.
Growth Projection of South Asia
According to the report, the Gross Domestic Product (GDP) is estimated to surge by 6.2 percent in both the years 2025 and 2026.This growth rate is estimated by comparing with the growth rate of 6 percent in 2024. The reason for the growth in South Asia is due to strengthening growth in India.
India and China are the two biggest emerging and developing economies in the world. Both the countries’ GDP per capita is trying to come closer to the levels of advanced economies. Although, this movement is taking place at a slower speed. According to the projections of the National Statistical Office (NSO) on 7th January, 2025, the GDP growth in India is expected to grow at the rate of 6.4 percent in the financial year 2025, which is the weakest growth rate in the last four years.
In the year 2024, the growth is estimated to reach 3.9 percent in the South Asian region without considering growth in India. This growth highlights the bounce back of economies such as Sri Lanka and Pakistan. It is aided by enhancement in policies at macroeconomic level.
The political issues in Bangladesh during the period of mid-2024 affected the economic activity and confidence of investors adversely. Bangladesh observes supply chain issues such as restrictions on imports and energy constraints. It also leads to slumping in industrial activities that lead to burden on pricing levels.
The growth in South Asia (without India) is expected to increase at 4 percent and 4.3 percent in the financial years 2025 and financial year 2026, respectively. The estimations are a bit lower than the estimations in the month of June due to political and economic uncertainty in Bangladesh. The growth prospects of Bangladesh to fall to 4.1 percent in the financial year 2024-2025 and then gain to 5.4 percent in the financial year 2025-26.
Sector-wise growth in India
The service sector in India is estimated to sustain its economic growth. On the other hand, the manufacturing sector in India is projected to have strong growth. The growth in the manufacturing sector is supported by the strategies implemented by the Indian government to enhance the business situation and logistics framework. One of the strategies taken by India for these improvements is tax reforms.
Consumption and Investment levels
In the fiscal year 2024-2025, India’s growth is estimated to slow down by 6.5 percent. The reason for the slow down is slumping investment levels and poor manufacturing growth. Despite this, the growth of private consumption is strong in India. The reason for this is enhancement in rural income levels, supported by improvement in agricultural output.
The private consumption levels in the country are anticipated to expand due to increase in credit availability, robust labour market and also falling inflation levels. The urban consumption growth is suffering from slumping loan growth and also higher levels of inflation.
In case of investment growth, it is estimated to have stable growth. It is supported by factors such as expanding private investments, better financial conditions and also strengthening corporate balance sheets.
Growth Projections of Developing Countries
The developing countries in the world contribute to 60 percent of the global economic growth. Following the 2000, the developing economies are estimated to end the first 25 years of the 2000s with the slowest growth in the long term. Further the report of the World Bank also states that when the global economy is stabilising in the upcoming two years, the developing countries are projected to reach up to the income levels of advanced countries.
The GEP report of the World Bank is the first systematic analysis of the progress of the developing countries in the first quarter or the 25 years of the 2000s. The report findings state that in the first decade of the 2000s, the developing countries in the world went through robust growth following the 1970s. However, this performance was weakened due to the Global financial crisis (GFC).
Global Economic Integration
The Economic Integration at global level is weakening. While, the foreign direct investment (FDI) inflows in developing countries is half of the level of FDI flows in the initial years of 2000s. Also, the implementation of new global trade restrictions in the year 2024 are fivefold higher than the average trade restrictions in the years 2010 to 2019. Due to all this, the total economic growth in the 2000s, 2010s and 2020s fell to 5.9 percent, 5.1 percent and 3.5 percent, respectively.
Following the year 2024, the average per capita growth in the income levels of developing countries are halved compared to the growth in rich countries. It has led to an increase in the gap between rich and poor.
Future Outlook
The chief economist of World Bank and senior vice president for development economics, Indermit Gill states that the upcoming 25 years will be more difficult than the previous 25 years of the 2000s.
The image added is for representation purposes only
