Following IMF, World Bank lowers India’s growth forecast over demonetisation

By Aashi Sehrawat

A day after International Monetary Fund (IMF) lowered India’s growth forecast, the World Bank on Wednesday said India’s GDP may get slowed down from 8.6 per cent in 2015 to 7.0 per cent in 2017. The reasons according to them are the disruptions caused by demonetisation and the GST.

Although the report blamed the GST as a factor in lowering the growth projection for this year, the IMF said that it "is among several key structural reforms under implementation that are expected to help push growth above 8 percent in the medium term".

IMF’s Financial Counsellor Tobias Adrian conducted a study and it showed that Indian banking sector was vulnerable due to large segments having low profitability and having large problem loans. Also, according to a Finance Ministry data, Gross non-performing assets (NPA) of the public sector banks rose to Rs 6.41 lakh crore at the end of March 2017 as against Rs 5.02 lakh crore a year ago.

World Bank said that sound policies around balancing public spending with private investment could accelerate growth to 7.3 per cent by 2018.

Recommendations given by IMF were:

1.  The very first recommendation was for simplifying and easing labour market regulations and land acquisition procedures, which would help India improve the business climate.

2.   To facilitate more women to join the labour force, as gender gaps not only hold back potential output but also limit women’s opportunities, thereby decreasing country’s growth rate.

However, India is likely to regain the tag of the fastest growth emerging economies in 2018.

For the year 2022, the IMF has projected a growth rate of 8.2 per cent, as against its growth projection of 6.7 in 2017 and 7.4 in 2018.