The World Bank projected on Thursday that India’s GDP growth will remain below 8 per cent till 2018, the penultimate year of the Modi Government’s tenure. The projection contrasts sharply with the Government’s projection that the growth rate will cross 8 per cent this year and will be in double digits before the end of its term.
“Productivity and investment need to accelerate to match India’s ambitions of double-digit growth,” World Bank’s Senior Country Economist for India Frederico Gil Sander cautioned, releasing its India Development Update.
GDP growth is expected to accelerate gradually to 7.5 per cent in 2015-16 and to 7.8 and 7.9 per cent in the subsequent two fiscal years, the Update projected. However, this acceleration in growth is conditional on the growth rate of investment picking up to 8.8 per cent during the period 2015-16 to 2017-18, it said. “While growth will very likely remain above 7 per cent in the next fiscal year, there is significant uncertainty about the momentum of the economy.”
The projections would have been higher if the Constitutional Amendment Bill meant for the rollout of the Goods & Service Tax had cleared Parliament, Country Director World Bank India Onno Ruhl told reporters.
For the economy to achieve its potential, the Update called for three key reforms: First, boosting balance sheets of the banking sector by addressing the underlying challenges in the infrastructure sector, especially power and roads. Second, continuing to improve the ease of doing business and enacting the GST and third, enhancing the capacity of states and local governments to deliver public services as more resources are devolved from the centre.
The World Bank flagged the contraction in exports for the past 10 months, resulting in a loss of market share, and the stressed financial sector as key concerns. “Although India may be able to achieve fast GDP growth without export growth for a short period, sustaining high rates of GDP growth over a longer period will require a recovery of export growth…India has lost market share in the global export market as India’s exports have become uncompetitive,” the Update noted.
It also cautioned that since oil prices are unlikely to fall further, reducing deficits beyond the current financial year will be another key challenge for the Modi Government.
The Update lauded the build-up in India’s foreign exchange reserves: from a level equivalent to six months of imports in 2012-13 to nine months of imports as a consequence of the current account deficit narrowing. It projected the deficit to widen marginally to (-) 1.4 per cent this year followed by (-) 1.7 per cent and (-) 2 per cent in the subsequent two years. It also praised the greater devolution of taxes to the states and the higher capital spending by the Centre.