The World Bank on Thursday projected India to be the fastest growing major economy in the world this calendar year, with economic expansion pegged at 7.4 per cent, overtaking China’s 7.1 per cent for the first time.
India’s economy grew 7.1 per cent in 2014, when China’s, which is deliberately moderating its growth, expanded 7.4 per cent.
“India is, for the first time, leading the World Bank’s growth chart of major economies,” said Kaushik Basu, chief economist and senior vice-president at the global institution at the issue of the latest ‘Global Economic Prospects’ report in Washington. In the January-March quarter, India’s economy expanded 7.5 per cent and China’s by seven per cent.
Some small economies would grow faster than India’s. For instance, the Bank forecast Turkmenistan to grow eight per cent in 2015 and Uzbekistan by 7.6 per cent.
However, the Bank does not seem as optimistic as the government. It pegged India’s economy to grow by 7.5 per cent in 2015-16, slightly higher than the 7.3 per cent in 2014-15 but way down from the Union Budget assumption of 8.5 per cent. India’s economy was not forecast to reach 8.5 per cent even in 2017-18. The government’s Economic Survey had projected the economy to expand 8.1-8.5 per cent in 2015-16. The Bank projected 7.9 per cent growth in 2016-17 and eight per cent in 2017-18.
The Bank said reforms had buoyed the confidence in India and falling oil prices reduced its vulnerability as an importer. Concerns over the current account deficit, fiscal deficit and inflation have dissipated with the fall in oil prices. This, coupled with reforms, have raised confidence in the economy, said the report.
It said new reforms were improving business and investor confidence in India, attracting new capital inflows.
Basu said slowly but surely, the ground beneath the global economy was shifting. "China has avoided the potholes skillfully for now and is easing to a growth rate of 7.1 per cent. Brazil, with its corruption scandal making news, has been less lucky, dipping into negative growth," he said.
The main shadow over this moving landscape is of the eventual US liftoff, he noted.
Growth in South Asia is expected to continue firming to 7.1 per cent this year, led by a cyclical recovery in India and supported by a gradual strengthening of demand in high-income countries.
According to the report, developing nations face tough challenges in 2015. These include the looming prospect of higher borrowing costs as they adapt to a new era of low prices for oil and other key commodities, resulting in a fourth year of disappointing economic growth.
On the whole, the Bank expects developing economies to grow 4.4 per cent this year. This is likely to rise to 5.2 per cent in 2016 and 5.4 per cent in 2017.
"Developing countries were an engine of global growth following the financial crisis but now face a more difficult economic environment," said World Bank Group President Jim Yong Kim.
With the US Federal Reserve expected to raise interest rates, borrowing costs for developing countries are likely to rise in the coming months. "This could lead to market volatility and reduce capital flows to emerging markets by up to 1.8 per cent of GDP," the report said.
In the developed economies, though, the report points to growing momentum. Growth in the euro area and Japan has picked up and America continues to expand, despite a weak start to the year.
The bank expects high-income countries to grow by two per cent this year, 2.4 per cent in 2016 and 2.2 per cent in 2017.