India's Economic Growth Forecast by the World Bank

The World Bank has maintained its growth forecast for India at 6.7% for FY26, citing India as the fastest-growing major economy over the next two years.

Sectoral Growth Outlook

• Services Sector: Expected to experience sustained expansion. 
• Manufacturing Activity: Anticipated to strengthen due to government efforts to enhance logistics and improve the business environment through tax reforms. 

Global Economic Projection

• Global economy is projected to grow at 2.7% in 2025 and 2026, consistent with 2024 levels.
• Developing economies are expected to maintain a growth rate of about 4% over the next two years.

Challenges for Developing Economies

Indermit Gill, World Bank’s Chief Economist, highlighted the challenges ahead for developing economies:

• High debt, weak investment, and productivity growth.
• Rising costs of climate change.
• Need for domestic reforms to boost private investment, enhance trade relations, and optimize use of capital, talent, and energy.

India's Economic Indicators

• Private Consumption Growth: Expected to be fueled by a robust labor market, expanding credit, and declining inflation.
• Government Consumption Growth: May remain limited.
• Investment Growth: Projected to be steady with rising private investments.

Growth and Economic Challenges

India’s growth is projected to slow to 6.5% in 2024-25 from 8.2% in 2023-24 due to weaker investment and manufacturing growth. However, services and agriculture sectors show resilience.

Fiscal Policies in South Asia

• Fiscal policies are expected to be tight across South Asian countries.
• In India, fiscal deficits are likely to shrink due to increasing tax revenues.

Risks and Challenges in the South Asian Region

• Policy Uncertainty: Adverse trade policy shifts in major economies pose risks.
• Protectionist Measures: Intensification could affect exports and growth.
• Commodity Prices: Higher prices could harm growth, given the region's dependence on imports.
• Other Risks: Social unrest, tighter monetary policies, climate change disasters, and weaker growth in major economies.

Importance of Infrastructure Outlays in the Union Budget

Understanding the impact of infrastructure investments in the Union Budget necessitates grasping three key public expenditure principles:

1. Economic Impact of Infrastructure Spending

• According to government data, every Rs 1 spent on infrastructure contributes Rs 3 to the GDP.
• Conversely, Rs 1 spent on direct benefit transfers (DBT) adds only 90 paise to GDP.
• This highlights the significance of focusing on infrastructure capital expenditure to stimulate economic growth.

2. Gross Capital Formation in Infrastructure (GCFI)

• Mainstream political consensus suggests that India should aim for a GCFI of at least 7% of GDP.

3. Complementary Contributions

• Union Budget outlays for infrastructure are generally supplemented by contributions from states, private capital, and extra budgetary resources, including public sector undertakings.

The table provided quantifies the necessary outlays for India through 2029-30, predicting a Rs 13 trillion allocation for infrastructure in the 2025-26 Budget, targeting an overall spend of Rs 26 trillion to meet the 7% GDP objective.

Current Economic Concerns

• The RBI’s Systemic Risk Survey indicates low expectations for private capital expenditure revival due to geopolitical tensions, commodity price risks, and other factors.
• GDP estimates for Q2 of FY25 cast doubt on economic growth stability, with reduced government capital expenditure cited as a contributing factor.
• CMIE data shows a 22.1% decline in new project commencements and notable reductions in project completions and capital expenditure, both in government and private sectors.

Future Strategies and Recommendations

• Government may consider an 18% increase in infrastructure allocations to Rs 13 trillion.
• For a more aggressive economic boost, a Rs 15 trillion allocation might be pursued, potentially relaxing the fiscal deficit target by 0.5% for asset creation and economic revival.
• Additional funding could enhance social infrastructure sectors like health and education.

The content reflects the personal views of the author, an infrastructure sector expert and chairman of the CII’s National Council on Infrastructure.

India’s Job Market and Future Skills Readiness

India has been recognized for its preparedness in recruiting for future in-demand skills, especially in areas like artificial intelligence (AI), digital technologies, and green technologies, according to the inaugural QS World Future Skills Index.

Key Findings from the QS World Future Skills Index

• The index evaluates countries based on four major indicators: 
  • Skills Fit: Evaluates how well the education system meets industry and employer needs.
  • Academic Readiness: Assesses the country's ability to deliver future industry skills.
  • Future of Work: Measures job market readiness for future in-demand skills.
  • Economic Transformation: Analyzes the economy's readiness for skills-led industrial growth.
• India ranks 25th overall among over 190 countries.
• India secures the second-highest score (99.1) in the Future of Work indicator, following the US.
• India's strong venture capital attraction indicates a resilient investment ecosystem.

Strengths and Opportunities

• India is poised to integrate AI into its workforce faster than many other nations.
• Despite existing strengths, there are areas for improvement, particularly in: 
  • Higher education systems.
  • Industry collaboration.
  • Employment market alignment.
• Indian universities show potential but need to enhance digital, AI, and green skills training.
• India scored low on the Future-Oriented Innovation and Sustainability metric, indicating a need to align with global trends in: 
  • Green technologies.
  • Sustainable infrastructure.
  • Long-term environmental strategies.

According to QS Executive Director Ashwin Fernandes, India's dynamic startup culture and young population enable the country to lead in the digital, AI, and green sectors, despite global challenges.