The World Bank has forecast that India’s Gross Domestic Product growth will slow down to 7% in 2017 from 8.6% in 2015 because of disruptions caused by demonetisation and the Goods and Services Tax. India’s GDP growth rate had fallen to 5.7% for the first quarter of 2017-’18.
India’s economic slowdown has hit the economic growth in the South Asia region as well, the World Bank said in its biannual report, “South Asia Economic Focus”, that was released on October 8.
However, policies that balance public spending with private investment could accelerate growth to 7.3% by 2018, the report said. According to the World Bank, momentum may pick up within a quarter after the initial disruption in economic activities caused by GST.
The report said that evidence shows that manufacturing and services sectors have contracted sharply after the implementation of the single tax regime. The growth is expected to stabilise within a quarter, the World Bank said. However, it warned that if the internal bottlenecks are not resolved, “subdued private investment would put downside pressures on India’s potential growth.”
On Tuesday, the International Monetary Fund had also cited similar reasons when it slashed India’s GDP growth forecast for the 2017-’18 financial year to 6.7% in its World Economic Outlook report for October. In its April and July reports, the IMF had predicted that India would grow at 7.2% in 2017-’18.
Major ratings agencies have made similar observations lately. India Ratings on September 27 had said that the “more disruptive than expected” impact of demonetisation and the GST were factors responsible for the projected decline in India’s economic growth. On October 2, Fitch Ratings had reduced India’s projected growth for the 2017-’18 financial year to 6.9% from its earlier forecast of 7.4%.