India needs to activate “stalled engines”, including private investment and rural demand, to sustain 7.6 per cent growth rate in the coming years, World Bank said on Monday.
The country’s economy expanded at a faster pace in 2015-16 even as a number of its growth engines stalled, it said.
“Agriculture – having faced two consecutive drought years – rural household consumption, private investments and exports have not performed to potential,” said the India Development Update, a twice yearly report released.
It also said that to remain on this path and sustain 7.6 per cent growth in 2016-17, the challenge for the Indian economy is to activate the stalled engines – agricultural growth, rural demand, trade and private investment, while ensuring that demand from urban households and public investments do not run out of fuel.
The update expects economic growth to be at 7.6 per cent in 2016-2017 followed by a modest acceleration to 7.7 per cent in 2017-2018 and 7.8 percent in 2018-2019.
World Bank’s country director in India Onno Ruhl said: “There are good reasons for confidence in India’s near-term prospects.”
“However, a pickup in investments is crucial to sustain economic growth in the longer term. The recently approved bankruptcy code is helpful in this regard, and once it is implemented it will help unleash the productivity that Indian firms need in order to create jobs, and become globally competitive,” Ruhl added.
The most significant near and medium-term risks stem from the banking sector and its ability to finance private investment, which continues to face several impediments in the form of excess global capacity, regulatory and policy challenges, in addition to corporate debt overhang, according to the update.
It further noted that due to greater devolution of the spending power by the centre, states are now responsible for 57 per cent of the expenditure, which accounts for 16 per cent of GDP.
The update said health and education expenditures increased in almost every state in 2015-16.
“Combined health and education expenditures increased in 13 of the 14 states for which data was available,” it said.