GDP growth in India, Asia’s third-largest economy, is set to bounce back to rates exceeding 7% for the next three years, according to the World Bank.
It will be a few notches better than China, and miles ahead of other major economies.
This is a moment of respite for the Narendra Modi government, less than a week after the country’s chief statistician pegged India’s GDP growth for financial year 2018 at the lowest level in the last four years.
What’s working for India
The World Bank’s projections factor in potentially strong growth in private consumption and services, as well as a recovery in private investment.
Notwithstanding the rise in pessimism in India, the World Bank is all praise for the roll-out of the goods and services tax (GST), demonetisation, the fresh capital infused into weak state-owned banks, easing approvals for businesses, as well as foreign direct investment, and the “Make in India” programme. The incumbent prime minister may well use this data to good effect while seeking re-election in 2019.
The World Bank has also lauded India for controlling its fiscal deficit, which has been one of the successes of the Modi government so far. This has kept the economy in good stead despite the precarious health of India Inc. Meanwhile, foreign investors rewarded India with a 17% growth in direct investments in the first six months of the financial year 2018. The stock market is near record highs, reposing faith in the country’s economic prospects.
But without job-creating private investments, this world-beater narrative will have gaping holes in it.
The big risks
For sustained job creation, private investments are a must and that seems to be India’s Achilles’ heel.
Private investments have languished as “corporate debt overhangs and high levels of non-performing loans” have dented sentiment, the World Bank noted. It has also warned that any setback in resolving these issues will “weigh on investments, and more broadly the medium-term growth.”
With bad debt at over Rs7 lakh crore ($109 billion), India is among the worst five nations in the world, pitched among distressed economies like Greece, Italy, Ireland, and Portugal. This, at a time when India itself is among the fastest-growing economies in the world.
But going into the new year, there are concerns that India may lose its fiscal composure, even before the other ailing parts recover. This fear is best reflected in the fact of the sharp fall in the value of Indian government bonds, amidst fears that the Modi administration’s upcoming budget may take the populist route going into key state elections and the big general elections in 2019.