Buoyed by the economic reform measures taken by the Indian government after coming to power in May last year, the World Bank has said that India would catch up with China’s growth in the year 2016-17.
“According to our analysis, India will catch up with China’s growth in the year 2016 and 2017,” World Bank Chief Economist and Senior Vice-President Kaushik Basu told reporters.
He was speaking yesterday at a conference call as the bank released the latest issue ‘Global Outlook: Disappointments, Divergences, and Expectations Global Economic Prospects,’ report.
“China’s growth will remain high, but will begin to taper very gently, reaching 6.9 per cent in 2017,” Basu said.
The World Bank in its report also forecast a growth rate of seven per cent each in the fiscal year 2016 and 2017 as against China’s 7 per cent and 6.9 per cent respectively.
This would be for the first time in recent past that India’s growth rate would catch up with that of the Asian giant China.
The World Bank estimated a growth rate of 5.6 per cent in 2014 and has forecast a growth rate of 6.4 percent in 2015, while that of China as 7.4 (estimated) in 2014 and 7.1 per cent (forecast) in 2015.
In its report the Bank said growth in South Asia rose to an estimated 5.5 per cent in 2014 from a 10-year low of 4.9 percent in 2013.
“The upturn was driven by India, the region’s largest economy, which emerged from two years of modest growth,” it said.
Regional growth is projected to rise to 6.8 per cent by 2017, as reforms ease supply constraints in India, political tensions subside in Pakistan, remittances remain robust in Bangladesh and Nepal, and demand for the region’s exports firms, it said.
“Past adjustments have reduced vulnerability to financial market volatility. Risks are mainly domestic and of a political nature. Sustaining the pace of reform and maintaining political stability are key to maintaining the recent growth momentum,” the report said.
According to the Bank, implementation of reforms and deregulation in India should lift FDI.
“Investment, which accounts for about 30 per cent of GDP, should strengthen, and help raise growth to seven per cent by 2016, although this is contingent on strong and sustained progress on reforms. Any slackening in the reform momentum could result in a more modest or slower pace of recovery,” the report said.
“In India, a slow economic recovery is underway, helped by a sharp slide in inflation to multi-year lows and improving export momentum in line with rising demand from the US, a major trading partner,” it said.
“With the reform agenda building momentum and current account vulnerabilities considerably diminished compared to 2013, currency and equity markets came under some pressure but were less affected than other emerging market peers during an episode of global financial volatility in December 2014,” the report said.
“The improvement follows a sharp slowdown in the previous two years – to the weakest growth in nearly a quarter of a centuryâ€” during which high inflation and a perception of policy paralysis had depressed domestic investment, while growing macroeconomic imbalances increased vulnerability to volatility in global financial markets,” the Bank said.
A recovery in exports, declining oil import bills and strong remittance inflows are helping to narrow current account deficits, it said adding that a particularly sharp compression occurred in India where the deficit printed at 2.2 per cent of GDP in the third quarter of 2014, a 4.7 percentage point decline relative to its peak in fourth quarter of 2012.
“Some two-fifths of this improvement was due to stronger exports, and another two-fifths due to a decline in gold imports as a result of administrative restrictions. With the trade balance continuing to improve in line with falling global energy prices, restrictions on gold imports have been recently eased,” it said.