India's growth projected to rise to 7.1 percent by 2016-17

India's growth is projected to rise to over six percent in fiscal 2014-15, increasing to 7.1 percent by fiscal 2016-17 with the world economy expected to strengthen this year, according to the World Bank.

Growth is picking up in developing countries and high-income economies appear to be finally turning the corner five years after the global financial crisis, says the World Bank's Global Economic Prospects (GEP) report released Wednesday.

The firming of growth in developing countries is being bolstered by an acceleration in high-income countries and continued strong growth in China, the report said.

However, growth prospects remain vulnerable to headwinds from rising global interest rates and potential volatility in capital flows, as the US Federal Reserve Bank begins withdrawing its massive monetary stimulus, it said.

Growth in South Asia expanded a modest 4.6 percent in 2013, reflecting weakness in India amid high inflation, and current account and government deficits, the GEP noted.

More recently, regional exports have recovered, because of strengthening external demand and the earlier depreciation of the Indian rupee.

Regional growth is projected to improve to 5.7 percent in 2014, rising to 6.7 percent in 2016, led mainly by recovering import demand by high-income economies and regional investment.

The projected pickup, however, will depend on macroeconomic stability, sustained policy reforms, and progress in reducing supply side constraints, the report said.

The main risks to the outlook in South Asia are fiscal and policy reforms going off-track; uncertainties related to elections in Afghanistan, Bangladesh and India; entrenchment of inflation expectations; and a disorderly adjustment of capital flows in response to US tapering, it said.

Global GDP growth is projected to firm from 2.4 percent in 2013 to 3.2 percent this year, stabilising at 3.4 percent and 3.5 percent in 2015 and 2016, respectively, with much of the initial acceleration reflecting stronger growth in high-income economies.

Amongst high-income economies, the recovery is most advanced in the US, with GDP expanding for 10 quarters now.

The US economy is projected to grow by 2.8 percent this year (from 1.8 percent in 2013), firming to 2.9 and 3.0 percent in 2015 and 2016, respectively.

Growth in the Euro Area, after two years of contraction, is projected to be 1.1 percent this year, and 1.4 and 1.5 percent in 2015 and 2016, respectively.

"Global economic indicators show improvement. But one does not have to be especially astute to see there are dangers that lurk beneath the surface," said Kaushik Basu, senior vice president and chief economist at the World Bank.

"The Euro Area is out of recession but per capita incomes are still declining in several countries," he said with the Bank expecting "developing country growth to rise above five percent in 2014, with some countries doing considerably better, with Angola at eight percent, China 7.7 percent, and India at 6.2 percent".

"But it is important to avoid policy stasis so that the green shoots don't turn into brown stubble," Basu said.

(Arun Kumar can be contacted at arun.kumar@ians.in)