Note ban shock over, India to grow at 7.2%: World Bank

05 June 2017

The World Bank has projected a stronger 7.2-per cent growth rate for India this year with a further rise in the next two years, against 6.8 per cent growth in 2016, noting that India is recovering from the adverse effects of demonetisation.

Though the World Bank has revised India's growth figures downward by 0.4 per cent from its January forecast, it remains the fastest growing major economy in the world, World Bank officials said.

The World Bank, in its latest Global Economic Prospects released today, projects India's growth at 7.5 per cent in 2018 and 7.7 per cent in 2019.

In both the years, the forecast has been downgraded by 0.3 per cent and 0.1 percentage points as compared to the January 2017 forecast.

"A downgrade to India's fast pace of expansion is mainly reflecting a softer-than-expected recovery in private investment," the global lender said.

In 2016, activity was underpinned by favourable monsoon rains that supported agriculture and rural consumption, an increase in infrastructure spending, and robust government consumption, the report said.

"In India, recent data indicate a rebound this year, with the easing of cash shortages and rising exports. An increase in government spending, including on capital formation, has partially offset soft private investment," it said.

"While manufacturing Purchasing Managers' Indexes have generally picked up, industrial production has been mixed," the bank's report said.

On the cut in projections since January, the bank said this mainly reflects a more protracted recovery in private investment than previously envisaged.

"Nonetheless, domestic demand is expected to remain strong, supported by ongoing policy reforms, especially the introduction of the nationwide Goods and Services Tax (GST)," it said.

"Significant gains by the ruling party in state elections should support the government's economic reform agenda, which aims at unlocking supply constraints and creating a business environment that is more conducive to private investment," the Bank said.

M Ayhan Kose, director of the World Bank's Development Prospects Group, in response to a question by PTI, underscored the need of reforms in the banking sector.

"The government has taken steps to address the banking sector weakness, but that still remains on the to-do list," Kose said.

"Second of course is to stimulate - to try to reinvigorate - private investment, which has been weak," the bank official said.

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