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The World Bank has scaled down its estimate for India's economic growth this financial year to 5.5 per cent from 5.7 per cent projected in April. For India, as well as other developing countries, it recommended fiscal reforms such as simplifying the tax structure and broadening its base.
In a report on global economic prospects released on Tuesday, the World Bank said robust growth might be elusive, owing to capacity constraints in several middle-income countries, including India.
For 2012-13, India's economy grew at a decade-low of 4.5 per cent; for 2013-14, it grew 4.7 per cent.
For 2015-16 and 2016-17, the World Bank forecast India's economic growth at 6.3 per cent and 6.6 per cent, respectively.
The Planning Commission, likely to come out with its mid-term review of the 12th five year Plan (2012-13 to 2016-17), might take note of the World Bank's projections. If these numbers are considered, average annual growth for the 12th Plan will stand at 5.5 per cent, much lower than the eight per cent envisaged by the commission earlier.
The World Bank said compared to their gross domestic products (GDPs), the tax revenue of South Asian economies, including India, was lower than expected. "This, in part, stems from frequent tax exemptions and rampant tax evasion," it said.
The multilateral body cautioned there could be more pressure on the expenditure side if the event of demand to provide stimulus to support weak growth, or a failure to reform subsidies. It pointed to fuel, food and fertiliser subsidies accounting for an estimated 2.2 per cent of India's GDP in 2012-13.
A projected decline in international crude oil prices could provide governments in South Asian countries an opportunity to gradually reduce subsidies, without big hits to household budgets, the World Bank said.
It added measures to simplify the tax system, broaden the tax base and improve compliance could help raise tax revenue as share of GDP and aid in fiscal consolidation in India, as well as other developing countries.
On Monday, Finance Minister Arun Jaitley had said in 2013-14, tax collections accounted for only 10 per cent of GDP, compared with the Budget estimate of 10.9 per cent. "India can ill-afford this trend," he had said.
Among developing countries, inflation in the first quarter of 2014 exceeded seven per cent (year-on-year) in Bangladesh, Pakistan, India and Nepal, reflecting supply-side bottlenecks and persistence of food price inflation, the World Bank report said.
The stock markets in developing countries had recovered compared to a year ago; in many cases, these were higher than the levels seen at the beginning of the year. In part, the recovery in flows reflected resurgence in carry-trade investments, with investors borrowing at low rates in high-income countries to earn higher returns in middle-income countries such as Brazil, Turkey, India and Indonesia, the World Bank said.
It cautioned when global financial conditions tightened, the weight of debt servicing and refinancing costs on corporate balance sheets would rise and could pose risks to banking sectors, especially in Turkey and India, where substantial stocks of external corporate debt were due.
For South Asia, the report projected growth in 2014 at 5.3 per cent, 2015 at 5.9 per cent and 2016 at 6.3 per cent.
For the global economy, the World Bank lowered its growth projection for 2014 to 2.8 per cent from three per cent made in January. It projected global GDP to expand 3.4 per cent in 2015 and 3.5 per cent in 2016, broadly in line with the projections in January.
