World Bank optimistic on India, predicts this year economic growth at 7.2%

New Delhi: India’s economic momentum is expected to pick up speed from 6.8 percent in 2016 to 7.2 percent by 2017 after a modest setback due to weaker than expected investments and the effects of the withdrawal of large denomination bank notes.

"Timely and smooth implementation of the GST could prove to a significant benefit to economic activity. However, India faces the challenge of further accelerating the responsiveness of poverty reduction to growth," the World Bank said in its latest report.

Growth is projected to increase gradually to 7.7 percent by FY19/20, underpinned by a recovery in private investments, which are expected to be crowded in  by  the  recent  increase in public capex and an improvement in the investment climate, it said.

The report has also warned against “significant risks to India's favorable growth outlook”.

"Continued uncertainties in the global environment, including rising global protectionism and a sharp slowdown in the Chinese economy, could further delay a meaningful recovery of external demand. Second, there is great uncertainty about the extent to which demonetisation caused small, informal firms to exit and shed jobs. Third, private investment continues to face several impediments in the form of corporate debt overhang, stress in the financial sector, excess capacity  and regulatory and policy challenges, the report said.

"Subdued private investment would put downside pressures on India’s potential growth. Finally, further rapid increases in oil and other commodity prices could lead to a negative terms-of-trade shock. On the other hand, timely and smooth implementation of the GST could prove to a significant upside risk to economic activity in FY17/18," it said.

The report also confirms that South Asia remains the fastest-growing region in the world, gradually widening its lead relative to East Asia. Regional GDP growth is expected to rise from 6.7 percent in 2016 to 6.8 percent in 2017, and 7.1 percent in 2018.

The World Bank had in its earlier report on January decelerated India's growth for 2016-17 fiscal to 7 percent from its previous estimate of 7.6 due to demonetisation.

In its first report after November's demonetisation, the World Bank had said, "Indian growth is estimated to have decelerated to a still robust 7 percent (in fiscal 2017 ending on March 31, 2017), with continued tailwinds from low oil prices and solid agricultural output partly offset by challenges associated with the withdrawal of a large volume of currency in circulation and subsequent replacement with new notes."