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Describing South Asia as a global growth hotspot, the World Bank has said India’s GDP growth will remain strong at 7.6 per cent in 2016 and 7.7 per cent in 2017.
“In India, GDP growth will remain strong at 7.6 per cent in 2016 and 7.7 per cent in 2017, supported by expectations of a rebound in agriculture, civil service pay reforms supporting consumption, increasingly positive contributions from exports and a recovery of private investment in the medium term,” the World Bank said in its latest report on South Asia Economic Focus released yesterday.
“However, India faces the challenge of further accelerating the responsiveness of poverty reduction to growth, promoting inclusion, and extending gains to a broader range of human development outcomes related to health, nutrition, education and gender,” said the biannual report.
According to the report, South Asia remains a global growth hotspot and has proven resilient to external headwinds such as China’s slowdown, uncertainty around stimulus policy in advanced economies, and slowing remittances.
The main challenges remain domestic, and include policy uncertainty as well as fiscal and financial vulnerabilities.
In Pakistan, economic activity is projected to gradually accelerate over the medium term reaching 5.0 per cent in 2017 and 5.4 per cent in 2018, building upon 4.7 per cent GDP growth at factor cost in 2016 (5.7 per cent at market prices).
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Growth in Bangladesh has remained robust despite internal and external headwinds, it said. Growth will be sustained at 6.8 per cent in 2017, coming slightly down from 7.1 per cent in 2016, the report added.
On India, the report said economic growth remained robust, which, as in the past, is expected to support continued poverty reduction.
“This year is expected to see some convergence in rural and urban economies, supported by stimulating policies, such as passage of GST and civil pay revisions, along with good monsoons,” the report said.
Re-balancing of growth drivers will in turn support the sustainability and inclusiveness of GDP and household income growth going forward, it said.
“Optimism on the growth front needs to be balanced with caution when translating to broad-based poverty reduction. Despite the recent success in poverty reduction, gains have been uneven, with greater progress in states and social groups that were already better-off,” the report said.
“India faces the challenge of further accelerating the responsiveness of poverty reduction to growth, enforcing inclusion of presently excluded groups (such as women and scheduled tribes), and extending gains to a broader range of human development outcomes related to health, nutrition, education and gender, where the country continues to rank poorly,” said the report.
The report also listed out “significant downside” risks in the near term.
“First, continued uncertainties in the global environment, volatility in commodity prices, broader spillovers from Brexit on world trade, and a further slowdown of the Chinese economy, could further delay a recovery of external demand,” it cautioned.
Second, it said, the government has set ambitious targets for raising revenue from divestments and spectrum auctions. If these are not met, there is a risk that growth-enhancing capital and social spending may be cut to meet fiscal targets, or that fiscal targets may be missed, undermining the credibility of fiscal policy, it warned.
The expected boost to rural consumption from favorable monsoons could be dampened by deleveraging of debt incurred by farmers over the previous two drought years.
Private investment also faces several domestic impediments in the form of corporate debt overhang, stress in the financial sector, and regulatory and policy challenges.
“If these bottlenecks are not alleviated, subdued private investment would create downside pressures on India’s potential growth,” the report said.
The World Bank said economic growth remains robust. GDP growth accelerated to 7.5 per cent y/y in the four quarters ending June 2016 from average of 6.5 per cent in the previous twelve quarters, it said.
This acceleration has been led by urban consumption and public infrastructure investments, it said, adding that rural consumption has been constrained by two successive drought-years and subdued growth in rural wages.
Sustained growth in manufacturing and modern services, as well as growth in personal credit have underpinned urban consumption. Investment momentum remained subdued despite concerted growth in public spending, largely due to global excess capacity and deleveraging of corporate and bank balance sheets, the report said.