World Bank: India can grow at 7% by expediting reforms

India’s gross domestic product (GDP) can grow at seven per cent or more, provided the process of reforms is expedited, the World Bank has said.

Speaking to Business Standard, R Zaga, country director, said the country needed to effectively tackle six structural challenges — energy, population, agricultural productivity, integration of the domestic market, urbanisation and the legal and regulatory framework. “India and China have grown faster than the global economy. Despite the slowdown, India has, so far, achieved a growth rate of 6.9 per cent, and has the potential to achieve GDP growth of seven per cent or more."

He added the Reserve Bank of India had accumulated $290 billion in foreign reserves. With imports and external financing requirements rapidly rising, the reserve cover is declining. “A policy of continuing reserve additions would reduce external vulnerabilities, while at the same time support the external competitiveness of the industry. However, now, Indian policymakers are in a weaker position to face another global crisis than in 2008,as the fiscal space is limited and inflation is still high, which limits monetary policy room," he said.

However, Zaga said high growth and low interest rates meant a high fiscal deficit did not lead to to debt woes.

"The debt to GDP ratio is projected to decline to about 60 per cent of GDP in 2012-13, despite a consolidated government deficit of eight per cent of GDP. He said the annual Budget was a good one.

Zaga said while worries over the fate of the euro certainly influenced investors in India, exports to Europe were actually showing very robust growth. After the slump induced by the GFC, export growth reached 40% in 2011. Export growth surpassed import growth but the trade balance continued to widen," he added.

On the world economy, Zaga said the worst is past and the situation is improving. “US is recovering and there are similar signs in other economies too,” he added.