The World Bank has said that the Indian economy will continue to grow but acceleration year-on-year will be gradual. According to the latest India Development Update of the World Bank, India was able to take advantage of the sharp decline in global oil and commodity prices to eliminate petrol and diesel subsidies and increase excise taxes. Resources from lower subsidies and higher taxes has been well utilized in lowering deficits and increasing capital expenditure. Current account deficit narrowed 3.4 percentage point between financial year (FY) 12-13 and FY 14-15 and capital expenditure increased by one third in the first six months of calendar 2015 compared to the previous year. During the same period the construction sector expanded by 4 per cent. The Update noted that while public investments have helped kick-start the investment cycle, increased participation of the private sector will be required going forward. The Update, a twice yearly report on the Indian economy and its prospects, expects India’s economic growth to be at 7.5 per cent in 2015-2016, followed by further acceleration to 7.8 per cent in 2016-2017 and 7.9 per cent in 2017-2018. However, acceleration in growth is conditional on the growth rate of investment picking up to 8.8 per cent during FY2016-FY2018, it adds. While growth will very likely remain above 7 per cent in the next fiscal year, uncertainty about its momentum is high and downside risks ample. According to the Update, in the near term India is relatively well-positioned to weather the global volatility. Its low trade exposure to China and considerable foreign exchange reserves provide ample buffer. In the medium term, however, the Indian economy is not immune to a slowdown in global demand and heightened volatility. India requires some measure of foreign capital inflows to finance both fiscal and current account deficits and ultimately the investments to spur growth. China’s slowdown has further deteriorated India’s already weak export outlook. Although India may be able to achieve fast GDP growth without export growth for a short period, sustaining high rates of GDP growth over a longer period will require a recovery of export growth, the Update says. “There are good reasons for confidence in India’s near-term prospects. To lay the foundation for sustainable growth and accelerate job creation, implementing the government’s reform program is key. While progress is visible in several areas, including improvements in the ease of doing business, some key reforms, most notably the implementation of the Goods and Services Tax (GST) can be a potential game changer for India,” said Onno Ruhl, World Bank Country Director in India.
