India's GDP is likely to grow by 5.6 per cent in 2014-15: World Bank

A World Bank report titled ‘India Development Update’ has said that India’s GDP is likely to expand at 5.6% in the current fiscal year, 2014-15
The report also said that the GDP growth may rise further to 6.4% and 7% in 2015-16 and 2016-17. Key Points:

  • The report foresees acceleration of growth in India as the Central government’s proposed measures such as the Goods and Services Tax (GST) will give a boost to the manufacturing sector, a World Bank report said on Monday
  • The report opines that implementing of GST will ‘transform India into a common market, eliminate inefficient tax cascading, and go a long way in boosting the manufacturing sector.’ Also, systematic dismantling of inter-State check posts, brought about post-GST can boost competitiveness
  • Long-term prospects for growth in the Indian economy also remain positive mainly due to economic reforms gaining momentum under the new government at the Centre
  • However, for India to maintain the projected growth trajectory it has to continue ‘making progress on its domestic reforms agenda and encourage investments’
  • The report states that the rebounding of growth in the economy has been mainly due to a strong industrial recovery. Other economic indicators have also improved with increased capital flows, moderation of inflation, stabilization of the exchange rate and also growing investor confidence. Domestic demand is also expected to increase due to declining crude oil prices
  • The long-term growth potential also remains high due to favourable demographics, high savings rate and recent efforts by the government to improve skills and education
  • Another factor favouring the growth prospects of India are improving economic conditions in US, which will, in turn, lead to increased merchandise and services exports from India to USA and stronger remittance inflows
  • As far as challenges go, the economy is vulnerable to external shocks, such as ‘financial market disruptions on the back of monetary policy changes in high income countries, slower global growth, higher oil prices, and adverse investor sentiment due to geo-political tensions in the Middle East and Eastern Europe.’ There is some amount of risk from internal challenges like stable energy supply and fiscal pressures from weak revenue collection in the short term. However, the report also states that these risks can be mitigated by focusing on reforms that help the manufacturing sector.



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