World Bank pegs India’s GDP growth at 7.5% next fiscal


Even as the global economic recovery remains fragile and is expected to slow down later this year owing to waning of the fiscal stimulus impact, the World Bank on Monday pegged India’s GDP (gross domestic product) growth at 7.5 per cent next fiscal and at 8 per cent in 2011-12.

In its new report titled ‘Global economic prospects 2010’ released here, the World Bank said: “India is expected to grow at 7.5 and 8 per cent in the financial year 2010 and 2011 respectively, well above the 6.4 per cent average posted during 1995-2005 (FY-basis)”.

Giving a rationale for its optimistic projection in a weak global scenario, the report argued that India’s growth would benefit from a firming in external demand, particularly by the resumption of growth in high-income countries, which represent about two-thirds of the country’s export markets.

On the FDI (foreign direct investment) front, the Bank noted that although investment inflows into India declined considerably in 2009 — estimated at $35 billion as compared to $41 billion in the previous year — the country would remain one of the top three developing country destinations for foreign investors. “FDI flows to India are expected to increase in 2010, as overall investment to developing countries recovers this year, and as the country continues to improve its FDI policies by simplifying investment procedures and relaxing investment limits in some sectors,” it said.

According to Hans Timmer, Director of the World Bank Prospects Group and author of the report, India weathered the global crisis relatively well, in part due to the government’s quick response in easing monetary policy and counter-cyclical fiscal policy measures that supported domestic demand.

For the current fiscal, however, the Bank sees the Indian economy growing at just 6 per cent.

As for the negatives, the Bank report also highlights certain areas of concern. “As private consumption gains momentum (following the marked deceleration during the crisis), India’s import volumes are likely to expand and are projected to outpace the recovery in exports,” it said.

Alongside, macro-policy is also expected to become much less expansionary in that as fiscal consolidation is pursued, the impetus to growth stemming from public consumption, is expected to sharply moderate. “While diversification and reforms in the country’s agricultural sector over recent years are likely to help cushion the negative impact of last year’s poor monsoon, the resulting poor harvest is expected to lead to a lower contribution to growth of agricultural output and constrain the rebound in household consumption in 2010,” the report said.

On the global front, the report warned that while the worst of the financial crisis may be over, the world recovery still remained fragile and predicted that the fallout from the crisis “will change the landscape for finance and growth over the next 10 years.”

Global GDP, which declined by 2.2 per cent in 2009, is expected to grow 2.7 per cent this year and by 3.2 per cent in 2011.

“Despite the return to positive growth, it will take several years before economies recoup the losses already endured,” it said while estimating that about 64 million more people will be living in extreme poverty (on less than $1.25 a day) by the end of 2010 than would have been the case had the crisis not occurred