Big Boost for Narendra Modi Government:World Bank thumbs up for Indian Economy!!

Those who said the Indian Economy is ruined after PM Modi came to power will now have to shut their mouth for the rest of the year. Yes, the World Bank gave a thumbs up to PM Modi’s policies and said India has “enormous growth potential” compared to other emerging economies. It noted that the Indian economy has recovered from the effects of demonetisation and the Goods and Services Tax (GST) and predicted a growth rate of 7.3 percent for the country in 2018 and accelerate to 7.5% in 2019-20.

In its biannual publication, India Development Update, the World Bank said it expected Indian economy to clock a growth rate of 6.7% in the current financial year. The report further stated that the growth is expected to accelerate from 6.7 percent in 2017 to 7.3 percent in 2018, and will subsequently stabilise, supported by a sustained recovery in private investment and private consumption.It also applauded the efforts of  Modi Government and stated that after implementation of the 7th central pay commission and revival in rural demand after normal monsoon and agricultural momentum,public and private consumption have gained pace.

World Bank country director in India Junaid Ahmad also praised India’s continuous growth. He said “India’s long-term growth has become more steady, stable, diversified and resilient.

Along with this boost World Bank has also advised nation on some aspects. The World Bank highlighted private investments and exports as the two lagging engines of growth. The report noted that India should strive to accelerate investments and exports to take advantage of the recovery in global growth. It pointed out that a growth of over 8% will require “continued reform and a widening of their scope” aimed at resolving issues related to credit and investment, and enhancing competitiveness of exports

Meanwhile, the bank also acknowledged that the employment rate of India is declining.It stated that “Every month, the workforce increases by 1.3 million people and India must create 8.1 million jobs a year to maintain its employment rate, which has been declining based on employment data which was analysed from 2005 to 2015, largely due to women leaving the job market.

The bank said that India’s GDP growth saw a temporary dip in the last two quarters of 2016-17 and the first quarter of 2017-18 due to demonetisation and disruptions surrounding the initial implementation of GST. Economic activity has begun to stabilise since August 2017, it said. India’s economic growth had slipped to a three-year low of 5.7% in April-June quarter of the current fiscal, though it recovered in the subsequent quarters. The economy is expected to grow at 6.6 % in 2017-18, as per the second advanced estimates of the Central Statistics Office, compared to 7.1% in 2016-17. The earlier estimate was 6.5%.

However, unlike Economic Survey, which cited rising oil prices as a risk to economic growth, inflation and current account deficit, World Bank said: “Oil price seem less of a risk for now, unless the outlook changes dramatically”.

According to the World Bank, the most substantial medium-term risks are associated with private investment recovery, which continues to face several domestic obstructions such as corporate debt overhang, regulatory and policy challenges, which includes the risk of an imminent increase in US interest rates.

If the internal bottlenecks are not reduced, subdued private investment will put downside pressures on India’s potential growth.Downside risks to the global economy and accordingly to export growth and capital flows are also given the possibility of monetary policy normalisation in the US and risks of protectionism, the World Bank said.

The world bank advised that the return to business and the subsequent rebalancing of growth drivers towards investment could support the acceleration of the growth in GDP growth to percent by the Financial Year (FY) 2019, the bank further said.Sustained growth is expected to help in poverty reduction, though with heightened uncertainty because of the effects on the informal economy, it added.

The World Bank also emphasised on cleaning up banks’ balance sheets, realising the expected growth and fiscal dividend from GST, and continuing the integration into the global economy as it praised IBC as an important reform.