World Bank expects India GDP growth to acclerate to 5.6% in FY2015

World Bank believes implementation of the GST is a crucial reform for improving competitiveness of India's manufacturing sector

In a report titled "South Asia Economic Focus Fall 2014", the World Bank said India's GDP growth would accelerate to 5.6% in FY2015 and 6.4% in FY2016. Key India related highlights of the report are as follows

* Capital flows are back, signaling growing investor confidence.

* Financial sector stresses have plateaued, but the sector's overall health will need to be closely watched.

* Subsidy burden is likely to ease in FY15 as diesel under-recoveries hit historic lows

* The pace of reforms has gained momentum.

* Financial regulations have been strengthened to increase transparency and deepen financial markets.

* As many as 75 million poor households could gain access to bank accounts under Pradhan Mantri Jan Dhan Yojana

Outlook and Policy

* Growth is expected to improve to 5.6% in FY2015, 6.4% in FY2016 and 7.0% in FY2017.

* Oil subsidy burden could decline to 0.6% of GDP, if benign global crude prices persist.

* Risks to the outlook could be mitigated, to a large extent, by continued progress on the reform agenda.

* Supply chain delays and uncertainty are a major yet underappreciated constraint to manufacturing growth and competitiveness in India.

* Implementation of the GST is a crucial reform for improving competitiveness of India's manufacturing sector.

- GST will free up decisions on warehousing and distribution from tax considerations so that operational and logistics efficiency determines the location and movement of goods.

- Freight and logistics networks will realign according to the location of production and consumption activities, creating the hub-and-spoke models that are needed to improve freight and logistics performance.

- Simply halving the delays due to road blocks, tolls and other stoppages could cut freight times by some 20-30% and logistics costs by an even higher 30-40%.

-This would be tantamount to a gain in competitiveness of some 3-4% of net sales for key manufacturing sectors, helping India return to a path of high growth and enabling large-scale job creation.

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