India’s GDP To Grow At 7.3% In FY19, Says World Bank

Boats sit docked by the banks of the Ganges river in Varanasi, Uttar Pradesh, India. (Photographer: Dhiraj Singh/Bloomberg)

The World Bank expects India's gross domestic product to grow at 7.3 percent in 2018-19 and 7.5 percent in the subsequent fiscal, in line with the Economic Survey's projection.

“At present, there are indications that the economy has bottomed out, and in the coming quarters, economic activity should revert to the trend growth rate of about 7.5 percent,” the World Bank said in its bi-annual report titled India Development Update. The Economic Survey tabled in Parliament has projected a growth rate of 7-7.5 percent in the financial year starting April 1.

The Indian economy is likely to recover from the impact of demonetisation and the GST, and growth should revert slowly to a level consistent with its proximate factors -- that is, to about 7.5 percent a year.

World Bank Report

Also Read: India Can No Longer Spend Its Way To Higher Growth

The government had scrapped high-value currency notes of Rs 500 and Rs 1,000 in November 2016 in a bid to check black money, among others. Last year, India implemented the Goods and Services Tax. Both of these initiatives had impacted the economic activity in the country in the short-run. India's economic growth had slipped to a three year low of 5.7 percent in the April-June quarter of the current year but recovered in subsequent quarters.

While projecting a 7.5 percent GDP growth, World Bank said attaining a growth of 8 percent or higher on a sustained basis would depend on effective implementation of existing structural reform agenda. Besides, it will need support from the global economy and reversal in declining trends in investment, credit and exports.

According to World Bank, for India to sustain its growth path, it needs to

Keep a close eye on several factors to make country resilient to shocks
Undertake reforms in the banking sector
Strengthen financial institutions, and regulatory supervision of the financial sector
Undertake structural reforms in areas of health and education

Also Read: Q3 GDP Data: India's Economy Continues To Rebound

‘Consolidate State-Owned Banks'

The report also emphasised on the need to consolidate public sector banks, besides recapitalising them. The government should not control 70 percent of India's banking system, Junaid Ahmad, country director at World Bank told BloombergQuint.

“Consolidation itself is not the solution, but a part of the solution to create a competitive banking system,” he added.

The World Bank report also says that the insolvency process would take time to be effective in cleaning up banks' balance sheets, but will help in improving the credit behaviour.