After conceding its position as the fastest growing major economy to China for a year in 2017, India is likely to reclaim the position in 2018, with growth expected to accelerate to 7.3% in the year, according to the World Bank’s Global Economic Prospects report released on Wednesday.
The report projected China’s economic growth to slow to 6.4% in 2018 from 6.8% in 2017. The World Bank also revised India’s growth estimate for 2017 to 6.7% from 7% projected in October, blaming short-term disruptions caused by the newly introduced goods and services tax (GST) and a softer-than-envisioned recovery in private investment.
To be sure, the estimates are on a different fiscal year basis for each country. India’s fiscal year runs from April to March. China follows a January-December fiscal year.
The global economy, meanwhile, is experiencing a broad-based cyclical upturn, which is expected to be sustained over the next couple of years, although downside risks persist, the World Bank said.
“In contrast, growth in potential output is flagging, languishing below its longer-term and pre-crisis average both globally and among emerging market and developing economies. The forces depressing potential output growth will continue unless countered by structural policies," it cautioned.
Global growth is projected to edge up to 3.1% in 2018, as growth in advanced economies is projected to slow while growth in emerging economies is expected to accelerate.
India’s statistics office on Friday projected the economy to slow to 6.5% in 2017-18 from 7.1% a year ago. The economy has been hurt by the lingering impact of demonetization and disruptions caused by GST.
Moody’s Investors Service in a report released on Wednesday said India and China remain the fastest growth economies in the Asia-Pacific region.
“A gradual moderation in growth in China and temporary slowdown in India will be balanced by robust growth trends in other Asian economies," it added.
Economic affairs secretary Subhash Chandra Garg tweeted: “World Bank releases its GDP growth estimates. India projected to grow at 6.7% in 2017. Higher growth of 7.3% projected for 2018. Impressive advance corporate tax payments in 3rd quarter indicates India’s growth turnaround to be much better."
Direct tax collections grew by more than 18% in the first nine months (April-December) of the fiscal year 2017-18 to two-thirds of the full-year target, which is expected to provide a breather to the government as it struggles to contain the fiscal deficit.
“In all likelihood, India is going to register higher growth rate than other major emerging market economies in the next decade. So, I wouldn’t focus on the short-term numbers. I would look at the big picture for India and big picture is telling us that it has enormous potential," Ayhan Kose, director, development prospects group, World Bank, told PTI in an interview.
The World Bank said strong private consumption and services are expected to continue to support economic activity. “Private investment is expected to revive as the corporate sector adjusts to the GST; infrastructure spending increases, partly to improve public services and internet connectivity; and private sector balance sheet weaknesses are mitigated with the help of the efforts of the government and the Reserve Bank of India," it said.
Over the medium term, GST is expected to benefit economic activity and fiscal sustainability by reducing the cost of complying with multiple state tax systems, drawing informal activity into the formal sector, and expanding the tax base. it said. “The recent recapitalization package for public sector banks announced by the government of India is expected to help resolve banking sector balance sheets, support credit to the private sector, and lift investment. The global trade recovery is expected to lift exports," it added.
The Bank said key risks to India are domestic in nature such as setbacks to reforms to resolve corporate and financial sector balance sheet deterioration and debt write-offs for farmers.
“Corporate debt overhangs and high levels of non-performing loans have been long-standing concerns in some countries (e.g. Bangladesh, India). Setbacks in efforts to resolve these domestic bottlenecks would continue to weigh on investment, and more broadly on medium-term growth prospects in the region," it added.
“Weak private investment was only partly mitigated by a public infrastructure investment push and a surge in current expenditures after recent public pay hikes," the report said.