Lifted by the prospects of faster implementation of reforms and a favourable terms-of-trade shock, India is likely to weather global volatility with real GDP growth projected to increase to 7.5% despite a weak export recovery, the World Bank has said in its forecast.
Confirming India as the fastest growing among large economies in the world, the bank in its latest report projects the country to grow by 8% by 2017/18.
With China gradually transitioning into an environment of lower growth, India could durably occupy the top growth spot among large emerging markets, it said on Sunday.
In its latest South Asia Economic Focus Fall 2015, the WB said, “lifted by the prospects of faster implementation of reforms and a favourable terms-of-trade shock”, the Indian economy has remained on a path of modest acceleration as reflected in improvements in investments, and industrial output.
However, the delay in implementing key reforms on the domestic front, a weak trade performance and the recent slowdown in rural wage growth pose risks to growth, it said.
The terms-of-trade shocks are identified based on their impact on commodity prices, global manufactured prices, and global economic activity.
Economic activity in India, the bank said, is expected to accelerate gradually, on the back of improved industrial activity, a continued revival of the investment cycle and resilient consumption.
“India is expected to weather global volatility in 2015/16, with real GDP growth projected to increase to 7.5% despite a weak export recovery,” the bank said.
Public investments are expected to accelerate, in line with the government’s stated focus on enhancing infrastructure investments, and start crowding in private investments.
With the expected upward momentum in investment, the overall growth momentum can gradually reach 7.9% in 2017/18. Private consumption may also receive a fillip from the imminent civil service pay revisions and is expected to grow by 8% by 2017/18.
On the production front, the acceleration would be supported by construction activity at first, with manufacturing gradually picking up pace, the report said.
At the same time, the bank said India’s projected growth outlook is subject to substantive downside risks.
The most immediate is related to corporate and financial sector balance sheets, and in the longer-term the implementation of the government’s reform programmes , it said.