World Bank pegs India's GDP growth at 7.5%

Wednesday 06th May 2015 06:11 EDT

The Indian economy has turned the corner but wider reforms are needed to boost growth, the World Bank said, and estimated the economy to expand by 7.5% in 2015-16. The World Bank's India Development update said if the reform agenda was successfully implemented, it carries great promise of an acceleration in economic growth. The government expects growth in the 8.5% range, boosted by the measures that have been unveiled. “The government has made progress in several policy areas, and long-term prospects for growth remain bright for India,” said Onno Ruhl, World Bank country director for India.

“The current situation offers an opportunity to further strengthen the business environment and enhance the quality of public spending. Continuous strong momentum in these reforms will further unleash the productivity that Indian firms need in order to create jobs and become globally competitive,” said Ruhl. The report said a favourable external environment, particularly the sharp decline in the international prices of oil, metals and food, has helped to improve the economic outlook significantly.

According to the update, a twice-yearly report on the Indian economy and its prospects, economic growth is expected to rise to 7.9% in 2016-2017 and 8% in 2017-2018. However, acceleration in growth is conditional to investment growth picking up to 11% during 2016 to 2018. But, it said the economic outlook is subject to both external and domestic risks. “A rapid increase in oil prices is a key risk, and global growth remains constrained, particularly in several of India's trading partners,” the report said.

It also said a tightening of US monetary policy can have a disruptive impact on India's exchange rate and financial markets. While the RBI has built reserves to reduce India's external vulnerability, the risk remains, warranting vigilance, the report said. On the domestic front, the report points out that boosting private investment will be crucial to bridge the yawning infrastructure deficit and support the favourable growth outlook.

“With India's tax-to-GDP ratio remaining stubbornly low, the country will need to explore alternative channels of long term investment, and revive PPP model of financing. Additional fiscal space can be generated by increasing the tax-to GDP ratio, and improving tax administration and compliance,” the report said.

It said the outlook for new investments continues to be dented by the debt overhang in the corporate balance sheets, which has extended to the public sector banks.

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