A thumbs up despite reduced outlook on development.
R Chandrasekaran
At a time when India is struggling on several counts, be it on the economy or the political front, World Bank says it sees India’s long-term growth prospects remain intact despite the current slump. However, the bank had cut its growth estimate for the current fiscal year.
The comment assumes significance in the wake of India’s economy reaching a ten-year low to 5 percent in the fiscal year ended March. Though the World Bank had earlier predicted 7 percent growth for the current fiscal year, it has reduced its outlook to 6.1 percent in its latest update on India development. This is not surprising considering that International Monetary Fund too had reduced its economic forecast on India to 5.7 percent from 5.9 percent.
While the prime minister’s economic advisory council expects economy to grow 6.4 percent during the current fiscal year, rating agency, CRISIL has cut its predictions to 6 percent from 6.4 percent. The PM’s council also believes that the Indian economy has bottomed out. This view is ably supported by IMF as well as World Bank too.
Now that the inflation reached a three year low and oil and gold price is cooling down, the current account deficit, which was deteriorating, is likely to show improvements. The World Bank believes that the current account deficit will likely to narrow in the medium term.
The World Bank expects the inflation to ease further in the coming months on the expectations of a favorable monsoon. Currently, the Bank feels that the inflation is well within the Reserve Bank of India’s comfort zone. Therefore, the central bank is likely to announce cut in interest rates when they meet on May 3 for annual monetary policy review. This is expected to help growth momentum.
The bank believes that continuation of reforms is vital for the economic uptick and the recent economic activity shows signs of a pick-up that could have the potential to accelerate growth in the coming months. This will likely translate to a growth of 6.7 percent in the next fiscal year. The recent data such as fall in trade deficit, inflation and accelerated growth in investment and consumption are pointers to a recovery.
Commenting on the long-term prospects, World Bank’s chief economist Martin Rama has reportedly said, “Despite the current downturn, long term prospects remain bright for India. India possesses the fundamental to grow at sustained high rates over the next several decades”. The economist added, “With the working age population increasing by 7 billion people each year, the country will need to improve its business climate to attract the private sector investment needed for these new entrants to find productive jobs, thereby reducing poverty and boosting shared prosperityâ€.
The fact that MNCs such as Unilever and GlaxoSmithKline hiked their stake in Indian subsidiary suggests the confidence on Indian economy returning to a higher growth rate soon.
To contact the author, e-mail:Â rchandrasekaran@americanbazaaronline.com