Graphic: Naveen Kumar Saini/Mint
Graphic: Naveen Kumar Saini/Mint

World Bank: India bucks slowdown trend among developing economies

India's GDP showed strong growth in 2014 and is expected to grow even faster in the current year, says a World Bank report

On a day when the Nifty slipped below the 8,000-mark, the World Bank had some good news for India.

True, the overarching theme of the World Bank’s report on Global Economic Prospects for 2015 is one of better prospects for developed economies and a slowdown in the developing countries. According to the report, “Important shifts are emerging. The recovery in high-income countries is expected to gather momentum, while a broad-based slowdown appears to be underway in developing countries this year."

The World Bank says high-income economies such as the US, the euro zone, the UK and Japan will resume their role as global growth drivers for the first time since the global financial crisis, while the developing world falters. Gross domestic product (GDP) growth for high-income countries will rebound to 2% in 2015, the highest in four years. That’s seen in chart 1.

Note, though, that India is one of the few exceptions to the emerging markets slowdown. As the chart shows, India’s GDP showed strong growth in 2014 and is expected to grow even faster in the current year. While lower commodity prices and tighter financial conditions are pulling down growth in most developing countries, India is one of the beneficiaries of lower oil and commodity prices. What is going to drive growth in India? The World Bank predicts a revival of investment demand. Fixed investment growth in South Asia is expected to rise from 5% in 2014 to 7% by 2015 and to 11.3% in 2016.

The slowdown among emerging economies is reflected in lower capital flows to them, as a percentage of their GDP. The World Bank report says capital flows as a percentage of GDP is going to ease for developing countries to 5.1% in 2015 from a high of 5.9% in 2013 as growth slows, in sharp contrast with the last boom period (chart 2). Here too, South Asia does much better. For South Asia, the World Bank predicts that capital inflows are going to increase to 5.8% in 2015 from a low of 4.5% in 2013. India will attract the bulk of these capital flows, a trend which we are already seeing.

If the World Bank is right, the fundamentals of the Indian economy should ensure continued inflows to the country, supporting the stock markets.