World Bank forecasts India GDP growth rate at 7.3% in 2018-19

New Delhi: The World Bank on Wednesday said while India’s GDP growth rate will return to 7.5% in two years’ time, to sustain an 8% GDP growth rate, India requires a decisive structural reform momentum that succeeds in stimulating investment and export growth while maintaining macroeconomic stability.

The Indian economy regained its momentum in the December quarter, recovering from disruptions caused by demonetisation and implementation of the goods and services tax (GST), to expand at 7.2%, the fastest in five quarters. Based on the fiscal third-quarter gross domestic product (GDP) data, the full year’s growth has been raised to 6.6%. The World Bank has projected economic growth to accelerate to 7.3% in 2018-19 and 7.5% in 2019-20.

In its latest biannual India Development Update, the bank said if liquidity in financial markets tightens or risk aversion increases, it may adversely impact India’s growth outlook. However, it said oil price is less of a risk for now, as it expects oil prices to remain range-bound and average $58 per barrel in 2018.

The bank said despite the growth rate recovering, attaining a growth rate of 8% or higher on a sustained basis is not guaranteed in the absence of an effective structural reform agenda. There have been six episodes in the last five decades when growth rates exceeded 8%, about once in each decade.

The only durable episode of growth sustaining at levels above 8% for five continuous years is the one which lasted from 2004 to 2008, with the average growth rate reaching an unprecedented high of 8.8% a year.

“This episode benefited from the combined effect of important reforms undertaken in the 1990s and early 2000s and from an unusual buoyancy in the global economy and easy global liquidity, leading to high sustained growth across sectors and all components of GDP,” the bank said.

Sustaining a growth rate higher than 7.5%, and reaching an aspirational growth rate of 8% or higher will require contributions from all domestic sectors and support from the global economy, the World Bank said.

“Maintaining the hard-won macroeconomic stability, a definite and durable solution to the banking sector issues, realization of the expected growth and fiscal dividend from the GST, and regaining the momentum on an unfinished structural reform agenda are key components of this. Accelerating the growth rate will also require continued integration into the global economy,” the bank said.

The multilateral lending institution said decisive reforms will be needed to enable the Indian banking sector to help finance India’s growth aspirations.

“Besides recapitalization, a consolidation of public sector banks, revising their incentive structure to align it more closely with their commercial performance, ensuring a level playing field for private banks, and opening the space for greater competition would be important measures to durably enhance the stability and efficiency of the banking sector,” the bank added.

In addition, reforms to land, labour and financial markets would be needed to assure the continued competitive supply and use of key production inputs, the bank said.