World Bank sees India’s GDP to recover to 7.2% in FY22 topping South Asia except this country

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October 13, 2019 1:45 PM

The uptick in India’s growth would be seen as the “as the cycle bottoms-out, rural demand benefits from the effects of income support schemes, investment responds to tax incentives and credit growth resumes," the World Bank said.

The World Bank noted India’s GDP fall for the second consecutive year in FY19 to 6.8 per cent from 7.2 per cent in FY18.

Even as the slowdown in the first quarter of FY2020 followed by high-frequency indicators suggest India’s GDP to not grow beyond 6 per cent for current FY, it is likely to recover gradually to 6.9 per cent in FY21 and 7.2 per cent in FY22, World Bank said on Sunday. However, Bangladesh would be the only country in South Asia to grow marginally faster than India in FY22 with 7.3 per cent projected GDP. For FY21, Bangladesh (with 7.2 per cent) along with Bhutan (with 7.4 per cent for CY20) are expected to have higher GDP growth than India.

The uptick in India’s growth would be seen as the “as the cycle bottoms-out, rural demand benefits from the effects of income support schemes, investment responds to tax incentives and credit growth resumes,” it said in a report focusing on South Asian economies titled South Asia Economy Focus: Making (De)centralization Work. For the current FY, Bangladesh (with 8.1 per cent) and Nepal (with 7.1 per cent) GDP growth would likely be ahead of India.

The World Bank noted India’s GDP fall for the second consecutive year in FY19 to 6.8 per cent from 7.2 per cent in FY18. The first quarter of FY20, the economy saw ‘broad-based’ slowdown to a 25-quarter low of 5 per cent year-on-year with weakening demand along with the slowdown in the growth of both industry and services on the supply side.

Also read: Bangladesh, Nepal likely ahead of India as growth in South Asia to slow down in 2019, says World Bank

“In India, domestic demand has slipped, with private consumption growing 3.1 per cent in the last quarter from 7.3 per cent a year ago, while manufacturing growth plummeted to below 1 per cent in the second quarter of 2019 compared to over 10 per cent a year ago,” World Bank said.

Inflation remained below target even as it declined from 5 per cent a year ago to 3.2 per cent in the second quarter-end this year. “The RBI used this room to become the first central bank in the Asia-Pacific region to begin an easing cycle. It shifted the policy stance from “neutral” to “accommodative” and reduced the repo rate by 135 basis points (year to date) to 5.1,” the bank said.

The World Bank stressed that India’s weak financial sector is becoming a drag on growth with a level of non-performing assets (NPA) remaining high — close to 10 per cent (as on March 2019) of total assets. However, NPAs ratio went down from March 2018 to March 2019 for public (from near 16 per cent to 12 per cent between March 2018 and March 2019) and private banks (from nearly 4 per cent to around 3.8 per cent) and in both industry (from around 23 per cent to 17 per cent) and services (from over 6 per cent to below 6 per cent approximately).

Moreover, overall credit growth also grew again in July. However, “these positive developments leave no room for complacency, as financial sector conditions could deteriorate further if the recent slowdown is not properly addressed and contained,” the bank added.

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