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Business News

World Bank projects GDP growth at 7% in FY17, despite demonetisation

New Delhi: The World Bank has projected India’s economy to grow at seven per cent in the current financial year, even after taking into account the impact of demonetisation. It stated the impact of demonetisation was for the short term.

Though the projection was 0.6 percentage points lower than its earlier estimate of 7.6 per cent, these are only a shade below the Advance Estimates put out by the Central Statistical Office (CSO). CSO estimated the growth to be at 7.1 per cent without considering the effect of demonetisation and will factor in the impact in its revised Advance Estimates to be put out by February-end.

The World Bank also highlighted weak private investments for “slightly" pulling down economic growth, besides demonetisation.

The forecast, contained in the World Bank’s latest Global Economic Prospects, was, as such, more optimistic than economists and experts.

None of the 10 economists polled by Business Standard had agreed to the Advance Estimates. But the most optimistic of them did talk of a seven per cent growth rate, but he gave a range of 6.8-7 per cent.

India's economy grew at 7.6 per cent in 2015-16 and the World Bank expected the country to return to this growth rate by 2017-18. That way, it slightly cut growth projections for the next financial year by 0.1 percentage points from the 7.7 per cent forecast earlier. However, it raised growth forecasts by 0.1 percentage points for 2018-19 at 7.8 per cent, which it said the country would maintain in 2019-20, when the Narendra Modi government is expected to seek the electoral verdict in the initial part of the year.

“India’s slight growth slowdown (in 2016-17) from the preceding fiscal year reflects the short-term impact of the unexpected exchange of most of the bank notes in circulation. Ongoing weakness in private investment also weighed on activity," the multi-lateral agency said in the report, titled ‘South Asia Weak Investment in Uncertain Times’.

The World Bank said India’s growth in 2016-17 will reflect the direct and indirect benefits of a normal monsoon following two years of sub-par rains, and solid private and public consumption.

The rains were normal in 2016, though lower than initial estimates of the India Meteorological Department.  Advance Estimates pegged agriculture growth at 4.1 per cent in the current financial year against 1.2 per cent in 2015-16.

The World Bank said India is expected to regain its growth momentum in 2017-18 as reforms loosen domestic supply bottlenecks and increase productivity.

“Moderate inflation, and a civil service pay raise should continue to support real incomes and consumption. Private investment is expected to recover as firms and banks deleverage and the effects of important structural reforms such as the Goods and Services Tax and the Insolvency and Bankruptcy Code start being felt," it added.

The World Bank, however, said its outlook is tilted to downside. Uncertainty about fiscal consolidation could weigh on confidence in the near-term in India among other countries of South Asia, it said.

While the Union government is expected to meet its target of reining in its fiscal deficit at 3.5 per cent of the country’s gross domestic product, it is unlikely to accept the three per cent goal for the next financial year given in the fiscal consolidation road map. It would get a leeway form the yet-to-be-submitted panel on Fiscal Responsibility and Budget Management (FRBM) Act.

Overall, the Washington-based institution cut the world's growth estimates projection by 0.1 percentage points each at 2.3 per cent for 2016, the lowest after the global financial meltdown, and 2.7 per cent for 2017.

“Stagnant global trade, subdued investment, and heightened policy uncertainty marked another difficult year for the world economy. Global growth in 2016 is estimated at a post-crisis low of 2.3 per cent and is projected to rise to 2.7 per cent in 2017," it said.

Source: Business Standard

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