World Bank expects India to grow at fastest pace next financial year

India’s growth is forecast to recover to 7.3% in FY19 and 7.5% in the next two fiscals each, according to the World Bank forecast released on Wednesday.

India is set to regain its status as the world’s fastest growing economy in FY19, the World Bank said, seeing it as an economy with “enormous growth potential” because of ambitious reforms by the government. India’s growth is forecast to recover to 7.3% in FY19 and 7.5% in the next two fiscals each, according to the World Bank forecast released on Wednesday that saw a recovery in global growth to 3.1% in 2018 from 3% in 2017. “India has an ambitious government undertaking comprehensive reforms,” Ayhan Kose, director, Development Prospects Group, World Bank, told PTI in Washington. “GST is a major reform to have harmonised taxes, is one nation-one market-one tax concept. Then, of course, the late 2016 demonetisation reform was there.”

“Higher growth of 7.3% projected for 2018. Impressive advance corporate tax payments in 3rd quarter indicates India’s growth turnaround to be much better,” economic affairs secretary Subhash Chandra Garg tweeted. The World Bank expects current year growth at 6.7%, higher than government’s official estimate of 6.5% released last week. China is forecast to grow 6.8% in 2017 and slowdown to 6.4% in 2018.

“In all likelihood India is going to register higher growth rate than other major emerging market economies in the next decade. So, I wouldn’t focus on the shortterm numbers. I would look at the big picture for India and big picture is telling us that it has enormous potential,” Kose said.

The World Bank also saw longterm positive in demonetisation. “India’s recent reforms, such as Make in India initiative and demonetisation, are expected to encourage formal sector activity, broaden the tax base, and improve longterm growth prospects despite short-term disruptions in the case of demonetisation,” the World Bank said in a special section on growth prospects of South Asia.

India’s forecast for FY19 is 0.2 percentage points lower than earlier estimate of 7.5% because of softer-than-expected recovery in investments and lingering effects of policy changes such as demonetisation and goods and services tax (GST). “Domestic demand continued to drive growth, with strong private consumption and a public infrastructure spending push,” the World Bank said in its report. Corporate debt overhang and elevated non-performing loans in banking sector continued to weigh on already weak private investment.  Strong private consumption and services are expected to continue to support economic activity. Private sector investment is expected to pick up due to a combination of factors – business adjusts to GST, increase in core spending, repair of private sector balance sheets due to government and RBI’s efforts

Over the medium term, the World Bank said, GST is expected to benefit economic activity and fiscal sustainability by reducing tax compliance costs and widening the tax base. Bank capitalisation package will improve public sector banks’ balance sheet, raise credit growth and lift investments while recovery in global trade will boost exports.