World Bank Cuts Growth Projections in India

The Gross Domestic Product (GDP) of India may decline to 7.0 percent for this year versus 8.6 percent in 2015 due to concerns in demonetization and the Goods and Services Tax (GST). As per forecast from the World Bank, controlled private investment brought by internal bottlenecks could impose downside pressure towards India’s potential growth.

On Wednesday, the International Monetary Fund (IMF) had revised lower the country's growth outlook at 6.7 percent in the current, this shows 0.5 percentage point lower than the two previous forecast and weaker than the 6.8 percent by China.

As indicated in the biannual economic update from South Asia Economic Focus, the economic development of India was greatly affected by the issues regarding the withdrawn banknotes and risks involving the GST. Therefore, resulting in an expected slow growth.

The growth could increase by 7.3 percent next year through implementing fair policies in balancing public expenditure with private investment. It is projected that sustained growth could lead to further poverty alleviation and more attention is necessary to help the informal economy gain benefits, according to a report issued prior the annual meeting of the World Bank and the IMF.

Moreover, the reduction in India’s economic growth also weighed down to South Asia, which resulted to a tip over the second rank followed by the East Asia and the Pacific.

On the other hand, both public and private expenditure have faster pace after the approval of the Seventh Central Pay Commission (7th CPC). And also because of the recovery in the rural demand subsequent to the agricultural impetus and normal monsoon. Meanwhile, the aggregate demand decline as public investment begins to weaken.

The bank mentioned that GST is forecasted to stall economic progress earlier next year, however, there is a tendency that momentum may raise. There are indications that show manufacturing, post-GST and services could possibly decrease sharply.

The economic activity could sustain within a quarter in stabilizing the GDP rate at 7.0 percent in 2018.