Source: Economic Times

The World Bank expects India’s economic growth to climb to 8% in 2017-18, on the back of a 7.5% expansion in the current fiscal year and 7.9% in the next, provided the rate of investment picks up to 11% during the 2016-18 period and industrial growth accelerates.

The latest update has taken into consideration the recent unseasonal rains that have hit farm output. It assumes oil and commodity prices to remain low. “Research and cross-country experience show that investment and manufacturing depend on conducive business environment, deep and efficient financial sector, labour market regulations and infrastructure,” the World Bank said.

“India needs to explore alternative channels for long-term investment while reviving the PPP (public-private partnership) model of financing to meet India’s yawning infrastructure gap,” Senior Economist Poonam Gupta said in a news release on the bank’s India Development Update. According to Gupta, simultaneous efforts to increase the tax-to-GDP ratio through timely implementation of goods and services tax, as well as complementary measures to improve tax administration and compliance, can generate additional fiscal space in the years ahead.

Highlighting the correlation between high credit growth and high growth in investment, the World Bank said the banking sector is currently not in a position to support recovery of investments because of rising nonperforming assets, especially at public-sector banks. The report has also cautioned that economic growth in India is at risk from potential tightening of the US monetary policy.

“While the Reserve Bank of India has taken preventive measures to reduce external vulnerability, and has built international buffers as a first line of defense, the risk remains, warranting vigilance,” Gupta wrote.