​Trading up: On the World Bank’s India Development Update Politics & News

In its latest India Development Update, the World Bank has raised its 2024-25 GDP growth forecast for the economy to 7%, from 6.6% estimated earlier this year. The projection is now in sync with predictions from the International Monetary Fund and Asian Development Bank, but a tad lower than the 7.2% uptick projected by the RBI and Fitch Ratings. Earlier growth hopes for India were slightly modest, partly due to its strong 8.2% growth last year, and prospects of the global economy staying weak due to restrictive monetary policies and persistent geopolitical tensions. The World Bank estimates global growth to be the same as last year’s 2.6% pace, way below pre-pandemic levels. Despite this subdued external environment and the dissipation of post-COVID-19 rebound effects, the Bank’s economists now expect India’s growth to remain strong this year at 7%. However, external risks could cloud this, including pressures on supply chains and commodity prices, and a resurgence of inflation that could compel central banks to hold interest rates ‘higher for longer’.

The Bank expects private consumption to rise 5.7% and the farm sector to grow 4.1% this year, from last year’s anaemic trends. A recovery in farms could offset a slight moderation in industrial growth, and revive weak rural demand and help bolster private investment in the medium term, with GDP growth expected to hover in the 6.5%-6.7% range in coming years. On India’s imperative to generate non-farm jobs, the Bank acknowledged ideas such as the Production Linked Incentive schemes to support private manufacturing investments, and the new Employment-Linked Incentives. But these may not be able to generate the scale of activity India needs to engage its young workforce. The Bank has emphasised the need for a rethink on India’s approach to a critical growth engine — trade. India’s global trade share does not match its economy’s size, and it is yet to capitalise on the opportunity presented by China’s withdrawal from labour-intensive production or the much-vaunted ‘China plus one’ global reset. A concern is a decline in export-related jobs over the past decade, flagged by the Bank, coinciding with a shift towards capital- and skill-intensive exports. While trade facilitation steps and the pursuit of free trade agreements are commendable, some like the one with EFTA have limited potential, it noted. Progress has been hampered by new barriers to goods, services and investments, and it has called for a new strategic trade plan that reduces tariffs, non-tariff barriers as well as FDI curbs, and a rethink of the reluctance towards multilateral/ plurilateral pacts such as the RCEP. Policymakers must heed this prescription in earnest, and urgently.