World Bank pegs India's GDP growth higher than FY18 Advance Estimates

To overtake China next year after getting pipped by it in 2017-18

The World Bank has pegged India’s economic growth at 6.7 per cent in 2017-18, slightly higher than 6.5 per cent estimated by the statistics office. For the next financial year, the growth would accelerate to 7.3 per cent, overtaking China's at 6.4 per cent in 2018, the multi-lateral agency said.

In its 2018 Global Economics Prospect, the World Bank projected India's economic growth to be 7.5 per cent in the two years each after 2018-19. In these two years, China's growth rate will drop to 6.3 and 6.2 per cent, respectively.

The Central Statistics Office on Friday came out with Advance Estimates which showed that India's gross domestic product (GDP) growth would fall to 6.5 per cent in 2017-18, the lowest in the Modi government's first four years.

But, the World Bank said India was estimated to have grown at 6.7 per cent in 2017-18, despite initial setbacks from demonetisation and the goods and services tax (GST). Incidentally, the World Bank has cut its growth projections by 0.5 percentage points from earlier estimates.

Some economists also say that actual GDP growth will turn out to be higher than what was projected by the Advance Estimates.  Aditi Nayar, principal economist with ICRA, said, “We expect GDP growth to print at 6.7 per cent for FY18.”

If one goes by the estimates of the World Bank, China would pip India by growing a tad higher at 6.8 per cent in 2017.

The World Bank said the country has “enormous growth potential” compared to other emerging economies with the implementation of comprehensive reforms. “In all likelihood India is going to register higher growth rate than other major emerging market economies in the next decade. So, I wouldn’t focus on the short-term numbers. I would look at the big picture for India and the big picture is telling us that it has enormous potential,” Ayhan Kose, director, Development Prospects Group at the World Bank, was quoted as saying by the Press Trust of India.

He said in comparison with China, which is slowing, the World Bank is expecting India to gradually accelerate.

“The growth numbers of the past three years were very healthy,” Kose, author of the report, said.

To materialise its potential, India, Kose said, needs to take steps to boost investment prospects. There are measures underway to do this, in terms of non-performing loans and productivity, he said. 

“On the productivity side, India has enormous potential with respect to secondary education completion rate. All in all, improved labour market reforms, education and health reforms as well as relaxing investment bottleneck will help improve India's prospects,” Kose said.

India has a favourable demographic profile which is rarely seen in other economies. “In that context, improving female labour force participation rate is going to be important. Female labour force participation still remains low relative to other emerging market economies,” he said. Reducing youth unemployment is critical, and pushing for private investment, where problems are already well-known “like bank assets quality issues...If these are done, India can reach its potential easily and exceed,” Kose said.

“In fact, we expect India to do better than its potential in 2018 and move forward,” he said. India’s growth potential, he said, would be around seven per cent for the next 10 years.

The Indian government is “very serious” with the GST being a major turning point and the banking recapitalisation programme is really important, Kose said. “The Indian government has already recognised some of these problems and undertaking measures and willing to see the outcomes of these measures.” 

“India is a very large economy. It has a huge potential. At the same time, it has its own challenges. This government is very much aware of these challenges and is just doing its best in terms of dealing with them,” the World Bank official said.

These reforms, of course, will bring certain policy uncertainty, he said, "but the big issue about India, when you look at India's growth potential and our numbers down the road (in) 2019 and 2020, is that it is going to be the fastest-growing large emerging market."

"India has an ambitious government undertaking comprehensive reforms. The GST is a major reform to have harmonised taxes…. Then, of course, the late 2016 demonetisation reform was there. The government is well aware of these short-term implications," Kose said.

He said there might have been some temporary disruptions but "all in all" the Indian economy has done well.

"The potential growth rate of the Indian economy is very healthy to 7 per cent. I think the growth is going to be at a high rate going forward," the World Bank official said.