World Bank Lowers India’s Growth Forecast, Says GST, Demonetisation Affected Economic Momentum

India.com Business Desk
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World Bank Lowers India’s Growth Forecast, Says GST, Demonetisation Affected Economic Momentum

GST is expected to disrupt economic activity in early 2018, but the momentum may pick-up. It said evidence suggests that post-GST, manufacturing and services contracted sharply.

Washington, October 11: The World Bank, in its latest growth forecast, has said that India’s GDP may take a hit and may slow down from 8.6 per cent in 2015 to 7.0 per cent in 2017 due to disruptions by demonetisation and Goods and Services Tax (GST). It has also warned that subdued private investment due to internal bottlenecks could put downside pressures on the country’s potential growth. The World Bank is of the opinion that the GST is expected to disrupt economic activity in early 2018, but the momentum may pick-up. It said evidence suggests that post-GST, manufacturing and services contracted sharply.

Last week, World Bank President Jim Yong Kim had said that the Goods and Services Tax (GST) is going to have a hugely positive impact on the Indian economy. In its report, the World Bank said that India’s growth rate has also affected the growth rate of South Asia as a result of which South Asia has fallen to second place after East Asia and the Pacific. The World Bank in its South Asia Economic Focus, a biannual economic update mentioned that India’s economic momentum has been affected by disruptions from the withdrawal of banknotes and uncertainties around the Goods and Services Tax (GST). Meanwhile, the International Monetary Fund (IMF) on Tuesday projected India’s growth to 6.7 per cent in 2017, 0.5 percentage points less than its previous two forecasts and slower than China’s 6.8 per cent.

Due to various disruptions in the Indian economy, growth is expected to slow from 8.6 per cent in 2015 to 7.0 per cent in 2017. The World Bank further added that sound policies around balancing public spending with private investment could accelerate growth to 7.3 per cent by 2018.  The bank said that a slowdown in India’s growth rate has also affected the growth rate of South Asia as a result of which, South Asia has fallen to second place after East Asia and the Pacific.  “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,” the report said.

According to the World Bank report, the growth activity is expected to stabilise within a quarter maintaining the annual GDP growth at 7.0 per cent in 2018. It also said that 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 the GST and Bankruptcy Code, and measures to attract the FDI).

“If the internal bottlenecks are not alleviated, subdued private investment would put downside pressures on India’s potential growth,” the World Bank report said. As per reports by PTI, the bank report added saying that 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.

Ahead of the of the annual meeting of the International Monetary Fund and the World Bank, a report stated that while sustained growth is expected to translate to continued poverty reduction, more focus could be made to help benefit the informal economy more.