United Nations, May 17: The United Nations has revised its growth projection for the Indian economy for this year, raising it by 0.7 percentage points to 6.9% from its January forecast. This adjustment solidifies India's position as the world's fastest-growing large economy.
This improved outlook is driven by several factors, including lower inflation, robust export performance, and increased foreign investments, according to Hamid Rashid, Chief of the UN’s Global Economic Monitoring Branch. Rashid shared these insights on Thursday during the release of the mid-year edition of the World Economic Situation and Prospects (WESP) report.
"The drivers of this higher projection are straightforward: inflation has come down significantly, which means the fiscal situation is not as constrained as in other countries," Rashid explained. He highlighted that India's exports have been "pretty robust" and noted a shift in investment flows, with more Western investments moving to India as interest in China wanes. "India has become an alternative investment destination for many Western companies," Rashid added.
Additionally, Rashid mentioned that India's special oil import arrangement with Russia has contributed to reducing costs, further benefiting the economy.
The WESP report also presented a positive outlook for India's employment situation, noting improvements in labor market indicators amid robust growth and higher labor force participation. Particularly noteworthy was the increase in women’s labor force participation in South Asia.
For the next year, India’s growth projection remains at 6.6%, unchanged from January. Last year, India's economy grew by 7.5%, following a 7.7% growth in 2022, boosted by recovery from the pandemic-induced slowdown.
Globally, the WESP report revised the world economic growth projection for this year to 2.7%, up by 0.3 percentage points from January. The report highlighted that most major economies have managed to reduce inflation without increasing unemployment or triggering a recession. However, it added a note of caution, mentioning that challenges such as sustained high interest rates, debt issues, and escalating geopolitical risks continue to pose threats to stable economic growth.
The report also noted that developing economies are growing at a faster pace, averaging 4.1%, compared to developed economies, which are expected to grow by only 1.6% this year. However, growth among developing countries is uneven. Large developing economies like India, Indonesia, and Mexico are benefiting from strong domestic and external demand, whereas many African, Latin American, and Caribbean economies face a "low-growth trajectory" due to political instability, higher borrowing costs, and exchange rate fluctuations.
China's economy is projected to grow by 4.8% this year, making it the second fastest-growing large economy, while the US economy is expected to grow by 2.3%.
The WESP report also looked ahead, acknowledging both risks and opportunities presented by rapid technological changes. "The breakneck pace of technological change, including in machine learning and artificial intelligence, presents new opportunities and risks to the global economy. These advances promise to boost productivity and expand knowledge, but they also risk exacerbating technological divides and reshaping labor markets," the report stated.
