India’s economy to grow at 7.2% in FY18: World Bank

The Dollar Business Bureau

India’s economy is likely to grow at 7.2% in the current financial year, showing signs of revival from an expected slowdown to 6.8% in the last fiscal, said World Bank in a report on Monday.

“The revision of forecast reflects a combination of the impact of demonetisation and an investment recovery that has proven more protracted than expected,” it said in its May 2017 India Development Update report.

The multilateral investment agency estimated India’s gross domestic product (GDP) growth at 7.7% in 2019-20 and 7.5% during 2018-19.

“Growth is likely to slowdown in the financial year 2016-17 as the momentum of October-December quarter shifts to the last quarter of January-March,” the report said.

The World Bank report comes prior to the release of provisional estimates by the Central Statistics Office (CSO) for national income for FY17 on May 31. According to advance estimates of CSO, the GDP growth remains at 7.1% for 2016-17.

While the growth was temporarily hit by demonetisation, it has the potential to speed up the process of formalisation of the country’s GDP in the longer run, said the World Bank, adding that it would lead to more collection of taxes and higher digital financial inclusion.

The country’s economy grew 7% in October-December quarter as compared to the preceding quarter’s revised 7.4% expansion, because of demonetisation.

“On one hand, activity will pick up with the remonetisation of the economy. Trade indicators are also favourable: export growth was up 27.6% in March 2017,” it said.

The World Bank further said that smooth and timely implementation of new Goods and Services Tax (GST) regime, a new law to deal with insolvencies, and also the decisive action for resolving the bad loans issue is essential to improve the potential growth of the economy.

“India remains the fastest growing economy in the world and it will get a big boost from its approach to GST which will reduce the cost of doing business for firms, reduce logistics costs of moving goods across states, while ensuring no loss in equity,” said Junaid Ahmad, Country Director – India, World Bank.

As per the report, the general government debt is estimated to be 69.2% of GDP in the financial year 2017-18 that may be eased to 66.8% by the end of 2019-20.

The current account deficit (CAD) is expected to remain under 2% of GDP and it will be entirely financed by foreign direct investments (FDI) inflows, the report said. The country’s CAD was stood at $7.9 billion, or 1.4% of GDP in the period October-December.

On the other hand, there are considerable risks for the country’s growth outlook due to uncertain global environment that include the rising protectionism measures, and slowing China’s economy which may hinder external demand, the report said.