The World Bank has revised its projections for the Indian economy, now expecting a growth rate of 7.5% in 2024, up by 1.2% from earlier estimations. The bank's latest South Asia Development Update anticipates strong growth of 6.0% in the South Asian region for 2024, primarily propelled by India's robust performance along with recoveries in Pakistan and Sri Lanka.

According to the report, India is forecasted to lead the region's economic growth, with a projected output expansion of 7.5% in the fiscal year 2023/24, followed by a moderate growth of 6.6% in the medium term. The service and industrial sectors are expected to sustain their strength, driving this growth momentum.

Bangladesh is predicted to experience a 5.7% increase in output for the fiscal year 2024/25, but challenges such as high inflation and trade restrictions may limit economic activity. Pakistan's economy, after a contraction in the previous fiscal year, is anticipated to rebound with a growth rate of 2.3% in 2024/25, supported by improving business confidence. Sri Lanka is also expected to see a growth uptick to 2.5% in 2025, fueled by recoveries in reserves, remittances, and tourism.

The report highlights the importance of adopting policies to enhance private investment and employment growth to ensure resilient growth in the region. It underscores that despite the favorable demographics, South Asia is not fully capitalizing on its potential, which could lead to significant economic gains if addressed effectively.

In India specifically, economic activity surpassed expectations in the fourth quarter of 2023, driven by increased investment and government spending. Indicators such as the Composite Purchasing Managers Index (PMI) have shown strong expansionary trends, with growth in the fiscal year 2023/24 exceeding earlier forecasts.

Inflation in India has remained within the Reserve Bank of India's target range, supported by stable monetary policy. Financial conditions have remained favorable, with credit issuance growing rapidly and financial soundness indicators improving. Despite a decline in Foreign Direct Investment (FDI) as a share of GDP, foreign portfolio investment has rebounded, contributing to an increase in foreign reserves.

Looking ahead, India's growth is expected to moderate in the fiscal year 2024/25 due to a slowdown in investment from the previous year's elevated levels. However, the outlook remains positive, with robust growth in services and industry sectors, along with easing inflationary pressures, providing room for accommodating financial conditions.

Over the medium term, fiscal deficit and government debt are projected to decline, supported by strong output growth and government consolidation efforts, according to the report.