Increased private investment, recovery in global exports, and long-term benefits of GST will accelerate the country’s growth.
The World Bank predicts India will grow a handsome 7.3 percent in 2018-19. In its just-released 2018 Global Economics Prospect report, World Bank has said that India has “enormous growth potential” and will continue to grow its GDP by 7.5 percent in the next two years. It implies India will be the fastest-growing economy in the world again.
In 2017-18, it had lost the top spot to China which grew by 6.8 percent compared with India’s 6.7 percent, as per World Bank. Major economic policies like demonetisation, and the Goods and Services Tax (GST) implemented by the Modi government, and non-performing loans in the banking sector set the GDP growth back by a few percentage points. However, things are poised to improve.
Factors triggering growth
“Growth will pick up to 7.3 percent in 2018/19, and to 7.5 percent a year in the medium term. 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,” the World Bank report states.
India’s export sector is also looking up due to recovery in global trade. Private sector investment is estimated to grow too as “balance sheet weaknesses will be mitigated with efforts of the government and the Reserve Bank of India.”
The positive effects of GST will play out in the next fiscal. It will benefit economic activity by reducing the cost of complying with multiple state tax systems. Informal businesses will also be drawn into the GST ambit, thus widening the tax-base and letting the government earn more. India’s direct tax collections grew by 18.2 percent in the April-December period of 2017-18, according to a government statement.
Corporate India shining
World Bank’s projections are in line with CRISIL’s findings. In a separate report, the financial ratings and research advisory has revealed that corporate India’s revenue growth hit a five-year high in the October-December quarter.
“The aggregate topline of companies in key sectors to have grown nine percent on-year in the third quarter of fiscal 2018. “Higher realisations in steel, aluminium, cement and crude oil-linked sectors, and a pick-up in consumption-driven sectors such as auto, airlines, and retail, along with resolution of GST-linked issues are expected to have lifted growth,” CRISIL said in the report.
Elsewhere in the world
In South Asia, the average GDP growth is estimated to be 5.9 percent in 2018-19 as “domestic demands remain strong and exports recover.” Interestingly, Bangladesh is projected to grow as fast (6.7 percent) as China as low interest rates and improved infrastructure give a fillip to private investment. Bhutan’s GDP too is likely to grow around seven percent riding on hydropower-related construction activity and helpful policies for the private sector.
The global economy is projected to grow 3.1 percent riding on recovery in investment, manufacturing. Stronger commodity prices are likely to benefit commodity-exporting developing economies. Advance economies will grow moderately at 2.2 percent.
“The broad-based recovery in global growth is encouraging, but this is no time for complacency. This is a great opportunity to invest in human and physical capital. If policy makers around the world focus on these key investments, they can increase their countries’ productivity,” World Bank Group President Jim Yong Kim stated.