World Bank cuts India growth estimates

GDP to grow at 7.2% in FY18, lower from 7.6% estimated earlier

The World Bank on Monday cut its estimate of India’s growth in gross domestic product (GDP) for the current and previous financial years. It cited the impact of demonetisation and a slower-than-expected revival in the investment cycle.

However, it also said the economy’s fundamentals remain strong and would become more so after implementation of the goods and services tax (GST), slated from July. It has cautioned on the load of non-performing assets (NPAs) at banks, rising global protectionism and slowing of the Chinese economy.

The growth estimate for the ongoing 2017-18 year (it began on April 1) was reduced to 7.2 per cent from the previous 7.6 per cent. That for 2016-17 was toned down to 6.8 per cent, from the earlier seven per cent, said its bi-annual India Development Update.

The government’s formal estimates for 2016-17 GDP growth are to be issued on Wednesday. Advance estimates by the Central Statistics Office had earlier pegged this at 7.1 per cent. The figures to be issued would use the revised methodology for calculating the Index of Industrial Production (IIP) and the Wholesale Price Index (WPI), with the new base year of 2011-12 against the earlier one of 2004-05.

This prompted Soumya Kanti Ghosh, chief economic advisor with the State Bank of India (SBI) group to project GDP growth for 2016-17 at 7.6 per cent. And, for 2015-16 at 8.3 per cent, from the 7.9 per cent estimated earlier. Among the plus points, the World Bank said the growth fundamentals remain strong, with inflation having been stabilised, exports on the upswing and tax collections rising.

“This will be made stronger by introduction of GST, an incredible example of cooperative federalism,” said its country director, Junaid Ahmed. The report says the overall impact of GST on equity and poverty is likely to be positive. This is expected to see GDP growth going up to 7.7 per cent by 2019-20.

However, for that, global factors such as rising protectionism and a slowing Chinese economy shouldn’t play spoilsport. And, at home, debt overhang in the corporate sector and NPAs in banks need to be reduced.