Sustained 6–7% growth may matter more for India than short bursts of 11%: World Bank economist

• Sustained 6-7% growth drives India’s long-term development.
• Domestic demand provides durability to India’s economy.
• Rapid demographic shift demands simultaneous reforms.

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India’s ability to sustain economic growth of 6-7 percent over several decades may prove more consequential to its development journey than short periods of exceptionally high growth, World Bank Group chief economist for Asia Franziska Ohnsorge has said.

While growth closer to 8 percent would offer India a clearer path to achieving high-income status by 2047, the country’s its track record of relatively strong growth over extended periods should not be underestimated.

“India has a long history of growing at a very respectable rate, 6-7 percent. If you can sustain that growth over decades, you can achieve big development gains,” Ohnsorge told Moneycontrol in an interview after the release of World Bank’s India Development Update.

Such consistency could ultimately generate greater development gains than an economy expanding at 11 percent in one year before slowing sharply to 2 percent the next, she said.

On October 6, the World Bank raised India’s FY27 growth forecast to 7.1 percent from 6.6 percent earlier.

The durability of India’s growth is supported by the fact that it is predominantly driven by domestic demand rather than exports, she said.

Unlike several East Asian economies, where growth can be heavily influenced by changes in global trade and external demand, India’s growth drivers are more closely linked to its domestic economy.

“We don’t see any reason to expect slower growth in any of the components for growth,” she said, adding unless there was a significant policy shift, there was little reason for the momentum to weaken.

East Asia rides AI manufacturing boom

The difference between South and East Asia has also become visible in the artificial intelligence-led investment boom, with East Asian economies benefiting directly from their integration into global electronics and technology supply chains.

Ohnsorge said East Asia is deeply embedded in the supply chains feeding the surge in AI-related investment, particularly in electronics and goods production. This has contributed to growth forecast upgrades for several economies in the region.

“In East Asia, a lot of these forecast upgrades are actually driven by participation in this global AI chain,” she said, pointing to the industrial sectors benefiting from the increase in AI-related investment.

South Asia, in contrast, is considerably less integrated into these electronics and AI-related supply chains and is therefore not receiving the same growth boost.

“It’s a tailwind for East Asia right now. It’s a tailwind that is not carrying South Asia as much right now,” Ohnsorge said.
But the lower exposure also provides some insulation if the global AI investment cycle weakens.

Ohnsorge said a correction in AI-related activity in advanced economies would affect developing countries through both trade and financial channels. Since South Asia is relatively less integrated into these value chains, the impact through trade would be smaller than in East Asia, though financial-market spillovers would still affect the region.

Ageing makes productivity more important

The challenge, however, is that India and the rest of South Asia have a relatively narrow demographic window in which to translate growth into jobs, incomes and savings.

South Asia’s working-age population share is expected to peak by 2034, while the region could become an aged society by around 2049, Ohnsorge said.

The transition is considerably faster than that experienced by many other emerging economies and advanced countries.
That puts greater emphasis on creating productive employment today so that workers remain connected to the labour market and are financially secure as they grow older.

The challenge is amplified by low pension coverage. Ohnsorge said only around 10 percent of the population has a pension, while older people who remain in employment are overwhelmingly engaged in informal work, including agriculture.

Unlike countries that could first focus on creating employment and subsequently strengthen pension systems, South Asian economies may have to pursue both objectives simultaneously.

Ohnsorge said the rapid demographic transition means the region does not have the luxury of sequencing these reforms over several decades and will have to address employment creation and retirement security at the same time.