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‘Cash disruption’ and GST uncertainties affected India’s economic momentum: World Bank

Evidence suggests that post-GST manufacturing and services contracted sharply, it said adding that however, activity is expected to stabilise within a quarter – maintaining the annual GDP growth at 7.0 per cent in 2018.

By: PTI | Washington | Published: October 11, 2017 11:17 am
gst indian economy, gst withdrawal of banknotes, indian economy growth rate fall post gst, post gst indian economy, world bank report gst indian economy, business news, indian express news In its India section of the report, the Bank said one-time policy events – disruptions from demonetisation and uncertainty surrounding GST – slowed India’s economic momentum in 2016. PTI Photo by Manvender Vashist

India’s economic momentum has been affected by disruptions from the withdrawal of banknotes and uncertainties around the Goods and Services Tax (GST), the World Bank says in its latest report.

As a result, growth is expected to slow from 8.6 per cent in 2015 to 7.0 per cent in 2017. Sound policies around balancing public spending with private investment could accelerate growth to 7.3 per cent by 2018, the World Bank said in its South Asia Economic Focus, a biannual economic update.

While sustained growth is expected to translate to continued poverty reduction, more focus could be made to help benefit the informal economy more, said the report released here ahead of the annual meeting of the International Monetary Fund and the World Bank.

Union Finance Minister Arun Jaitley would be leading the high-powered Indian delegation to the fall meeting of the two financial institutions. Jaitley who arrived in the US on Monday is scheduled to come to Washington DC later this week.

Yesterday, he travelled to Boston from New York to interact with the American corporate leaders based there and address students of the prestigious Harvard University.

A slowdown in India’s growth rate, the bank said, has also affected the growth rate of South Asia. As a result, South Asia has fallen to second place after East Asia and the Pacific.

In its India section of the report, the Bank said one-time policy events – disruptions from demonetisation and uncertainty surrounding GST – slowed India’s economic momentum in 2016.

“Real GDP growth slowed to 7.1 per cent in 2016, from 8 per cent in 15/16, and further to 5.7 per cent in Q1 FY2017,” it said.

On the one hand, public and private consumption gained pace: after implementation of the 7th central pay commission recommendations; and due to the revival in rural demand after normal monsoon and agricultural impetus. On the other hand, overall demand slowed as public investments started to wane.

According to the bank, GST is expected to disrupt economic activity in early 2018, but has momentum to pick-up.

Evidence suggests that post-GST manufacturing and services contracted sharply, it said adding that however, activity is expected to stabilise within a quarter – maintaining the annual GDP growth at 7.0 per cent in 2018.

Growth is projected to increase gradually to 7.4 per cent by 2020, underpinned by a recovery in private investments, which are expected to be crowded-in by the recent increase in public capex and an improvement in the investment climate (partly due to the passage of GST and Bankruptcy Code, and measures to attract FDI), the bank report said.

The most substantial medium-term risks are associated with private investment recovery, which continues to face several domestic impediments such as corporate debt overhang, regulatory and policy challenges, along with the risk of an imminent increase in US interest rates, it said.

“If the internal bottlenecks are not alleviated, subdued private investment would put downside pressures on India’s potential growth,” the report said. Downside risks to the global economy – and accordingly to export growth and capital flows – are also substantial given the possibility of monetary policy normalisation in the USA and risks of protectionism, it added.

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  1. Damodar Biswal
    Oct 11, 2017 at 2:12 pm
    Should we say that WB report is also biased?Where r the opposition experts who were shouting at the top of their voice that Indian economy under NDA has slowed down?Yes,economic growth has a temporary setback.But not permanent.
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      Ivan
      Oct 11, 2017 at 2:20 pm
      I suggest you do not take the WB seriously. When Demo was in full swing, the WB was feigning the same unconcern as Modi, now that they cannot deny the drastic slowdown they are looking forward to a rise after a couple of quarters, the same incidentally as the FM. Now of course, the economy will find bottom at some point, but what is the basis for their optimism that it will shoot for 7 to 8 per cent in short ?
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        Ivan
        Oct 11, 2017 at 2:29 pm
        .. short order?...
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      2. Resurrect Fern
        Oct 11, 2017 at 2:41 pm
        World bank will act or comment according to the report of Indian corrupt Modi government. Demonetization is the biggest scam of the century.
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      3. Ravi Ok
        Oct 11, 2017 at 1:56 pm
        After 3 years,i understand long term plan of BJP.It is not such secret. BJP is actually not worried about hinduism because these changes will affect everyone. 1) Privatize every govt function and donate it to BJP owned corporations 2) Increase taxes to highest in world so consumption of all goods collapse and we enter permanent state of depression in consumer goods 3)Give more power to banks-government officials so they can confiscate your home-wealth and send you to jail 4) Make BJP richest political party in entire democratic world-Done and over 5) Eradicate labor protections-job reservations-environmental protections.Make every job temporary-contract based. 6)Shut down all ins utions/industries owned by rival politicians 7)Sell the farmland to foreign and domestic corporations. Corporatize farming and eradicate farmers. 8) Control media-already done 9) Start defense manufacturing industry 10)eliminate whoever opposes power of corporate fascist govt
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          Ivan
          Oct 11, 2017 at 2:08 pm
          Although your prognostications are exaggerations (for now), that is the general trend. It seems that old Indian habit of taking advantage of the commons, common law, common market etc, for one's own benefit, while preening about virtuously, once the hallmark of some of the Congress style socialist millionaires, has found a new home with the middle and upper class aspirants flocking to the BJP. The difference is in the rhetoric only, Congress spoke about the poor and their exploitation by the rich, the BJP about the virtuous Hindus, taken to cleaners by Muslims, Christians and secularism hiding behind socialism and secularism. Both are generally lies of course, but comfortable lies for those who cannot think beyond their own interests, which they push for rhetorical reasons, as the national good.
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          1. Damodar Biswal
            Oct 11, 2017 at 2:14 pm
            Either u r confused or made me confused.
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            Ivan
            Oct 11, 2017 at 1:47 pm
            The World Bank was parroting the Modi line until recently. It would appear that their economists here are relatively junior people, who are starting out and thus have little real world experience.
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            1. Damodar Biswal
              Oct 11, 2017 at 2:17 pm
              For communists n pseudo secularists any body who speaks the truth n if it happens to support Modi Govt. is wrong.They never bother to see reason n understand any thing.But clear about one thing: hate n oppose Modi.
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                Ivan
                Oct 11, 2017 at 2:27 pm
                You are one of the saner commentators supporting the BJP. Go back and read what the WB and IMF were saying about the effects of demonetisation. They were generally parroting the government line that it will cause a temporary blip in the economy. Has that panned out? So why should we take anything they have to say seriously. Yes they can come up with standard diagnoses, reduce spending, reduce corruption etc. But anyone studying economics can do the same thing. Real expertise comes from close analysis of policy impacts on the economy as it really is, not some some theoretical black box analysis, especially so when they do not know what is in the black box.
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            2. Tanweer Shahab
              Oct 11, 2017 at 1:43 pm
              It appears that the Modi government is affected by a sense of bravado rather than circumspection in the matters of the governance. Merely based on certain whims fed by the RSS think-tank far reaching policy decisions have been taken without proper consultation with economists and seasoned experts which have boomeranged. The national economy which was showing all signs of recovery has been uncharacteristically thrown out of gear bringing all sorts of miseries to the corporate players as well as the common people.
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              1. O
                obc has no interest in studies
                Oct 11, 2017 at 1:21 pm
                TOTAL FAULT IS BCOZ OF 8TH PASS UN-EDUCATED PM OBC. OBC WAS NEVER REALLY INTERESTED IN STUDIES. OBC SUROUNDS HIMSELF WITH GUJRATI PPL OR ILLITERATES UN EDUCATED LIKE HIMSELF. SO INDIA SINKING.OBC HAD ORDERED AND FORCED GST AND DEMONEYITZTION ON CRORES OF INDIANS. THEN RAGHURAM RAJAN HIGHLY EDUCATED AND HONEST, TRIED TO STOP THIS NONSENSE. BUT EGOISTIC GUJRATI OBC FORCIBLY TERMINATED RAJAN. THEN OBC PUT ANOTHER GUJRATI IN RBI, WHO IS HIDING REALITY FROM OBC , LEST OBC TERMINATE HIM ALSO. SO INDIA SINKING, AND REALITY KNOWERS IN GOVT ARE SHUTUP, TRYING SAVE THEIR NAUKRIS. THIS IS RALITY OF OBC. REMVE OBC OR HE CUD SINK INDIA.
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