India will grow by 7.3%: World Bank

According to the World Bank, India will continue to be the fastest growing major economy in the world. Fuelled by policy reforms and rebound in credit, India’s GDP is expected to grow at 7.3% in 2018-19 and 7.5% in the following two years while China’s economic growth is projected to slowdown.

Background

The economy of India is a developing mixed economy. It is the world's sixth-largest economy by nominal GDP and the third-largest by purchasing power parity (PPP). The country ranks 139th in per capita GDP (nominal) with $2,134 and 122nd in per capita GDP (PPP) with $7,783 as of 2018. After the 1991 economic liberalisation, India achieved 6-7% average GDP growth annually. Since 2014 with the exception of 2017, India's economy has been the world's fastest-growing major economy, surpassing China.

The long-term growth prospects for the Indian economy is positive due to its young population, corresponding low dependency ratio, healthy savings and investment rates, and increasing integration into the global economy. India topped the World Bank's growth outlook for the first time in the fiscal year 2015–16, during which the economy grew 7.6%. Despite previous reforms, economic growth is still significantly slowed by bureaucracy, poor infrastructure, and inflexible labour laws.

Analysis

The World Bank has released its Global Economic Prospects Report in which it is forecasted that  India’s GDP is expected to grow at 7.3% in the fiscal year 2018-19, and 7.5 per cent in the following two years, attributing it to an upswing in consumption and investment. The bank said India will continue to be the fastest growing major economy in the world.

China’s economic growth is projected to slow down to 6.2% each in 2019 and 2020 and 6% in 2021, according to the January 2019 Global Economic Prospects report released by the World Bank on Tuesday. In 2018, the Chinese economy is estimated to have grown by 6.5% as against India’s 7.3%. In 2017, China with 6.9% growth was marginally ahead of India’s 6.7%, mainly because the slowdown in the Indian economy due to demonetisation and implementation of the Goods and Services Tax (GST), the report said.  

“India’s growth outlook is still robust. India is still the fastest growing major economy,” World Bank Prospects Group Director Ayhan Kose said. “With investment picking up and consumption remaining strong, we expect India to grow 7.3% in the fiscal year 2018-2019, and average 7.5 per cent in 2019 and 2020. India registered quite a bit of pick up in doing business ranking. The growth momentum is there (in India),” Kose said.

Domestic demand has strengthened as the benefits of structural reforms such as the Goods and Services Tax (GST) harmonisation and bank recapitalisation have taken effect. Strong domestic demand is envisioned to widen the current account deficit to 2.6 per cent of GDP next year. Inflation is projected to rise somewhat above the midpoint of the Reserve Bank of India’s target range of 2 to 6 per cent, mainly owing to energy and food prices, the bank said.

Assessment

Our assessment is that while the trade tensions remain elevated and these countries have experienced substantial financial market pressures, India retaining its position as the fastest growing economy is commendable. We feel that it is likely that political environment could adversely affect the reform agent and activity in the country.