While India will fall behind China in economic growth among major economies this year, it is likely to regain the top position in 2018 with growth expected to accelerate to 7.3 per cent, according to the World Bank's Global Economic Prospects released today.
The World Bank estimates India's economy to grow by 6.7 per cent during the current fiscal year, higher than the 6.5 per cent estimated by the Indian government.
Gross Domestic Product growth is expected to rise to 7.3 per cent in 2018-19, making India again the world's fastest growing economy.
The World Bank report projected China's economy to further slow down to grow at 6.4 per cent in 2018 from 6.8 per cent in 2017. The multilateral lender at the same time revised downward India's growth estimate for 2017 to 6.7 per cent from 7per cent projected in October last year, blaming ''short-term disruptions from the newly introduced GST''.
It should be noted that the estimates are on fiscal year basis for each country, which means while for India 2017 is 2017-18 (April-March), for China 2017 is the calendar year.
The Bank forecast GDP growth of 7.5 per cent in 2019-20 and 2020-21.
India's statistics office on Friday projected Indian economy to slow down to 6.5 per cent in 2017-18 from 7.1 per cent a year ago on the back of lingering impact of demonetisation and disruptions caused by the goods and services tax (GST).
Economic affairs secretary Subhash Chandra Garg tweeted, ''World Bank releases its GDP growth estimates. India projected to grow at 6.7 per cent in 2017. Higher growth of 7.3 per cent projected for 2018. Impressive advance corporate tax payments in 3rd quarter indicates India's growth turnaround to be much better.''
Direct tax collections grew by more than 18 per cent in the first nine months (April-December) of the fiscal year 2017-18 to two-thirds of the full-year target, which is expected to provide a breather to the government as it struggles to contain the fiscal deficit.
The World Bank said strong private consumption and services are expected to continue to support economic activity. ''Private investment is expected to revive as the corporate sector adjusts to the GST; infrastructure spending increases, partly to improve public services and internet connectivity; and private sector balance sheet weaknesses are mitigated with the help of the efforts of the government and the Reserve Bank of India,'' it said.
The World Bank saw benefits down the road from GST. ''Over the medium term, the GST is expected to benefit economic activity and fiscal sustainability by reducing the cost of complying with multiple state tax systems, drawing informal activity into the formal sector, and expanding the tax base,'' the report said.
''The recent recapitalisation package for public sector banks announced by the Government of India is expected to help resolve banking sector balance sheets, support credit to the private sector, and lift investment. The global trade recovery is expected to lift exports,'' it added.
In its overview, the Bank said it finally saw the world economy recovering from the financial crisis that hit the world with full force in 2011.
It said, ''2018 is on track to be the first year since the financial crisis that the global economy will be operating at or near full capacity.''
The report forecast the global growth rate to edge up to 3.1 per cent in 2018 after ''a much stronger-than-expected'' 2017 growth of three per cent in 2017.