India’s economy, which witnessed a slowdown after demonetisation and the GST, has recovered from the impact of the twin policies, the World Bank said, adding that the new indirect tax regime may provide additional momentum to government’s revenue collection in coming days. “India’s economy has bottomed out from the deceleration caused by one-time policy events such as demonetisation and GST introduction,” the World Bank said in its latest South Asia Economic Focus Spring report.
“Growth in manufacturing and construction, most affected by GST and demonetisation, accelerated to 8.1 and 6.8 percent growth during Q3 FY18,” the World Bank said, adding that India’s general government fiscal deficit is projected to decline in the medium term. The implementation of GST may provide an additional impetus to revenue collections in the medium-term. The World Bank predicted an economic growth of 7.5% in 2019-20.
It, however, said that while investment growth picked up and grew at 12% year-on-year in the third quarter of the fiscal year 2017-18, investment rates remain below levels experienced before the financial crisis, a cause for worry.
The World Bank pointed out while private consumption will remain the primary driver of growth, with the services sector and increase the industrial sector leading production growth, two crucial engine have underperformed. “First, private investment has been low compared to pre-crisis levels, driven by factors that constrain credit supply and investment opportunities. Second, exports have slowed and India’s share in world trade has stagnated,” it said.
While external conditions seem to be turning more supportive of growth, India’s ability to leverage these will depend on a sustained revival of investments and exports, it added.