30.10.15

India to Grow at 7.5% in FY16: WB

The World Bank says India, now the world's fastest growing economy, is relatively well-positioned to weather the global volatility and even set for a modest acceleration in growth in the years ahead.
“The latest India Development Update expects India's economic growth to be at 7.5% in 2015-16, followed by a further acceleration to 7.8% in 2016-17 and 7.9% in 2017-18,“ the development lender said in its biannual report “India Development Update“ released on Thursday . “However, acceleration in growth is conditional on the growth rate of investment picking up to 8.8% during FY 16 to FY 18,“ the bank warned listing a number of reforms the country needs to undertake flagging the goods and services tax as most urgent. It said the country has got a big boost from the lower energy prices that has helped repair external account and left India less vulnerable. “India has low trade exposure to China, while Indian financial markets (local bond markets in particular) are fairly closed. India's considerable foreign exchange reserves (9 months of retained imports) provide additional buffer,“ the bank said.
“Resources from lower subsidies and higher taxes have been well utilised in lowering deficits and increasing capital expenditure,“ said World Bank India's Senior Country Economist Frederico Gil Sander at the launch of the report. The softer oil has allowed India to eliminate fuel subsidy and the reduction in current account deficit has led to fast accumulation of forex reserves, further cushioning the country against potential disruptions in the financial markets when the US begins to raise rates.
The softer oil prices together with the structural reforms has also given a boost to domestic demand and allowed India to achieve faster growth despite sluggish exports. However, it warned, “sustaining high rates of GDP growth over a longer period will require a recovery of export growth“ and there was uncertainty about the growth momentum with the high frequency indicators giving a mixed picture.
“High-frequency indicators have been mixed, with credit growth and wages of rural workers displaying varying degrees of weakness, while vehicle sales, industrial production and public investments point to an accelerating economy ,“ the report noted fluffing revamp of the PPP model and power sector reforms as key to resolving the issue of bad loans of banks.
“Public sector banks, which account for three-fourths of domestic credit, are under stress, with a rising share of non-performing assets,“ Gil Sander noted. The report noted the higher devolution of resources to the states after the 14th Finance Commission, but wondered if the states could use the resources judiciously . “The challenge going forward is to ensure that the states can deliver on their mandates given often limited capacity in the area of expenditure management, and that the centre can mobilise additional revenues to fulfil its own mandates in a continent sized country,“ it said.

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