Keeping its previous estimate of India’s GDP growth in 2017-18 unchanged at 6.7 per cent, the World Bank has signalled that the economic slowdown has bottomed out, and maintained its growth forecast for 2018-19 at 7.3 per cent and 7.5 per cent for 2019-20.
The government’s Central Statistics Office, in its second advance estimate, had pegged the gross domestic product (GDP) growth at 6.6 per cent, marginally above 6.5 per cent in the first advance estimate.
However, the pleasing growth projections come with the assumption that investments will grow at 6.7 per cent in 2019-20. The investment rate, as represented by the gross fixed capital formation, stood at 7.6 per cent in 2017-18, growing from a low of 1.6 per cent in 2013-14. “Continuing subdued rate of investment is worrisome and needs to accelerate,” the World Bank noted in its India Development Update released on Wednesday.
Apart from a revival in investment growth, sustained acceleration in bank credit availability and a boom in exports, by making them competitive, were inevitable for growth to “converge to about 7.2 per cent in the medium term”, it said.
Terming the Indian economy as “steady, stable, diversified and resilient”, World Bank’s country director for India, Junaid Ahmad, stressed on the role of robust infrastructure institutions to drive the ease of doing business and accelerate trade. The update analyses India’s growth trajectory over the past few decades and provides a long-term growth outlook, while centering the debate over a sustained 8 per cent growth in the coming decades, which will make India a ‘middle-class’ economy. India is currently a lower-middle income economy, which is defined as a country with gross national income per capita between $1,006 and $3,955, by the World Bank. The range of GNI per capita to be termed as an upper-middle income country is $3,956-$12,235. Creating infrastructure linkages — waterways, road and rail — from ports via distribution points to manufacturing hubs, and developing infrastructure institutions for urban transportation were key to the investment and trade revival, Ahmad said while answering queries.
Into the third quarter after the implementation of the GST, the report notes that India’s growth has bottomed out. With regard to reforms in banking and revival of bank credit, Poonam Gupta, lead economist for India and the main author of the report, said, “Savings should be channelised into productive investments, and the allocative efficiency of banks should improve.”
The Union Budget 2018-19 reinstated customs duties on many goods, drawing flak from many quarters, including former NITI Aayog vice-chairman Arving Panagariya. Under President Donald Trump, the US is advocating protectionism, which many economists believe to be counter-productive for the economy. “If you place a bottle-neck at one place, there is definitely an impact across the value chain. But it is very difficult to quantify how much and where will the impact be,” Gupta said.
On oil, the World Bank update says the sharp decline in global oil prices after 2014 “provided the conditions to help implement” some of the structural reforms, namely the containment of fiscal deficit and strengthening of fiscal federalism. But it also expects the current account deficit to widen to 1.9 per cent of GDP by FY20.
In terms of expenditure and economic activity across sectors, the World Bank report does not expect any change. In the expenditure matrix, it maintains that private consumption will be a primary driver of growth, while among sectors, services will continue being the leader.