World Bank projects sub 8 percent growth till 2018

The World Bank projected on Thursday that India’s GDP growth will remain below 8 percent till 2018, the penultimate year of Mr. Modi Government’s tenure. The projection contrasts sharply with the Government’s projection that the growth rate will cross 8 percent this year and will be in double digits before the end of its term.

“Productivity and investment need to accelerate to match India’s ambitions of double-digit growth,” World Bank’s Senior Country Economist for India Mr. Frederico Gil Sander cautioned, releasing its India Development Update.

GDP growth is expected to accelerate gradually to 7.5 percent in 2015-16 and to 7.8 and 7.9 percent in the subsequent two fiscal years, the Update projected. However, this acceleration in growth is conditional on the growth rate of investment picking up to 8.8 percent during the period 2015-16 to 2017-18, it said. “While growth will very likely remain above 7 percent in the next fiscal year, there is significant UN-certainty about the momentum of the economy.”

The projections would have been higher if the Constitutional Amendment Bill meant for the rollout of the Goods & Service Tax had cleared Parliament, Country Director World Bank India Mr. Onno Ruhl told reporters.

For the economy to achieve its potential, the Update called for three key reforms: First, boosting balance sheets of the banking sector by addressing the underlying challenges in the infrastructure sector, espe-cially power and roads. Second, continuing to im-prove the ease of doing business and enacting the GST and third, enhancing the capacity of states and local governments to deliver public services as more resources are devolved from the centre.

The World Bank flagged the contraction in exports for the past 10 months, resulting in a loss of market share, and the stressed financial sector as key concerns.
“Although India may be able to achieve fast GDP growth without export growth for a short period, sustaining high rates of GDP growth over a longer period will require a recovery of export growth…India has lost market share in the global ex-port market as India’s exports have become uncompetitive,” the Update noted.

It also cautioned that since oil prices are unlikely to fall further, reducing deficits beyond the current financial year will be another key challenge for the Modi Government.

The Update lauded the build-up in India’s foreign ex-change reserves: from a level equivalent to six months of imports in 2012-13 to nine months of imports as a consequence of the current account deficit narrowing. It projected the deficit to widen margin-ally to (-) 1.4 percent this year followed by (-) 1.7 per-cent and (-) 2 percent in the subsequent two years. It also praised the greater devolution of taxes to the states and the higher capital spending by the Centre.

(Source – The Hindu, 30-October-2015)