Home/ Economy / India needs to boost reforms to boost potential growth, says World Bank

India's potential growth could be bolstered with a faster implementation of already existing ambitious reform agenda, stated a recent World Bank report.

The report also stated that laying emphasis on the aftermath of financial sector distress could unlock significant growth. It highlighted the less developed financial system of India compared to its peers. Stating that the financial system was functioning with a massive state presence, the report suggested India to rationalise the role of public sector banks, ensure a level playing field in the banking sector, and promote the development of capital markets.

In its report, titled, “Falling Long-Term Growth Prospects: Trends, Expectations, and Policies", World Bank provides a comprehensive assessment of long-term potential output growth rates in the aftermath of the Covid-19 pandemic and the Russian invasion of Ukraine.

Key findings of the World Bank report

-There has been a broad-based decline in potential growth across the globe.

-The slowdown in the potential growth will persist for the rest of the decade.

-It is possible to reverse the slowdown in potential growth and chart a sustained, sustainable, and inclusive growth path by implementing ambitious, broad-based and forceful policies at the national and global level.

Major findings in terms of potential growth in India over decade

-Over 2000-21, investment in South Asian Region grew at average rate of 8% per year. However, India registered the steepest slowdown in its investment growth over the two decades to 2021.

-"Investment growth in India slowed from an annual average of 10.5% in 2000-10 to 5.7% in 2011-21,"stated the report. The report cited two period of week investment growth over two decades across the South Asian Region, first one was between 2012-14, and the second one between 2021-22.

-The report cited structural bottlenecks, including unreliable power, poor road and rail networks, and arduous administrative requirements on business, as the main barriers to investment over the past decade.

-Banking sector weakness have also constrained investment finance, cited report. The recent government investment policies addresses the need to boost infra development and meet the challenges of private sector-led growth.

-The report also stated that the fixed investment in India contracted sharply by 10.4% due to COVID-19 in FY2020-21, but government measures ensured a robust recovery. It led to a rebound by 15.8 % in FY2021-22, making the shortfall from the pre-pandemic trend among the smallest in South Asian Region.

-The report also talked about GST implementation in India, and said that the system doubled India's tax base in four years. It also suggested that other tax reforms could increase the tax revenue by 3-4 per cent points of GDP.

-The investment in sectors like construction, finance, telecommunication, health care has been impeded by entry and administrative barriers, stated the report. Restrictive labour laws was also a key reason of low women employ ability.

-In contrast to the regional trend of reducing productivity of low-skilled labour, India has made some gains over the past three decades.


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Updated: 28 Mar 2023, 12:30 PM IST
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