World Bank Says India Has Huge Potential; Projects 7.3% Growth In 2018
India has great potential, maintained the World Bank, estimating 7.3% growth in FY18.
With an “ambitious government undertaking comprehensive reforms”, India has “enormous growth potential” compared to other emerging economies, the World Bank said today. It projected country’s growth rate at 7.3 percent in 2018 and 7.5 percent for the next two years.
India, despite initial setbacks from demonetisation and Goods and Services Tax (GST), is estimated to have grown at 6.7 percent in 2017, according to the 2018 Global Economics Prospect released by the World Bank.
“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 short-term numbers. I would look at the big picture for India which says that it has enormous potential,” said Ayhan Kose, Director, Development Prospects Group, World Bank.
In comparison with China, which is slowing, the World Bank is expecting India to accelerate gradually, he added. “The growth numbers of the past three years were very healthy,” Kose, author of the report, said.
In 2017, China grew at 6.8 percent, 0.1 percent more than India, while in 2018, its growth rate is projected at 6.4 percent. And in the next two years, the country’s growth rate will drop marginally to 6.3 and 6.2 percent respectively, the report added.
To materialise its potential, India needs to take steps to boost investment prospects. There are measures underway in terms of non- performing loans and productivity, he said.
On the productivity side, India has enormous potential with respect to secondary education completion rate. All in all, improved labor market reforms, education and health reforms as well as relaxing investment bottleneck will help improve India’s prospects.Ayhan Kose, Director, Development Prospects Group, World Bank
Kose added that India has a favorable demographic profile, which is rarely seen in other economies.
“In that context, improving female labour force participation rate is going to be important. Female labour force participation still remains low relative to other emerging market economies. Bringing force right now idle outside of the productive activities will make a huge difference,” he said.
India can reach its potential if issues like reduction in youth unemployment, greater push for private investment, improvement in banks’ asset quality are undertaken well, said Kose.
“In fact, we expect India to do better than its potential in 2018 and move forward,” he said.
India's growth potential would be around 7 percent over the next 10 years, added Kose. The Indian government is ‘very serious’ about GST being a major turning point and even the state-owned banks’ recapitalisation plan is really important, he said.
“India is a very large economy with a huge potential, and a set of its own challenges. This government is very much aware of these challenges and is doing its best to deal with them,” the World Bank official said.
The latest World Bank growth estimate for 2017 is 0.5 percent less than the previous projection, and 0.2 percent less in the next two years. Explaining the rationale behind such a reduction, Kose said: “It is slightly lower than its previous forecast, primarily because India is undertaking major reforms.”
These reforms, of course, will bring certain policy uncertainty, but when you look at India’s growth potential and our estimates for 2019 and 2020, they assert that India is going to be the fastest growing large emerging market, Kose said.
“India has an ambitious government undertaking comprehensive reforms. 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. The government is well aware of these short-term implications,” Kose said.
There might have been some temporary disruptions but all in all, the Indian economy has done well, he said, adding that the potential growth rate of the Indian economy is very healthy at 7 percent. “I think the growth is going to be at a high rate going forward.”
The big question is whether Indian policymakers would, under the necessary reforms, push its potential growth up, Kose said.
“So far we have seen ambitious policy initiatives and implementation like GST. And we have all the reasons to expect this government to continue economic policies to create friendly environment for businesses and push its growth potential up,” he said.
In a South Asia regional press release, the World Bank said India is estimated to grow 6.7 percent in fiscal year 2017-18, slightly down from the 7.1 percent of the previous fiscal year.
This is due in part to the effects of the introduction of the GST, but also due to protracted balance sheet weaknesses, including corporate debt burden and non- performing loans in the banking sector, weighing down private investment, it said.
Also Read: India Sees FY18 GDP Growth At 6.5%