Study Material | Test Series
Drishti IAS
call1800-121-6260 / 011-47532596
Drishti The Vision Foundation
(A unit of VDK Eduventures Pvt. Ltd.)
prelims Test Series 2019
बेसिक इंग्लिश का दूसरा सत्र (कक्षा प्रारंभ : 22 अक्तूबर, शाम 3:30 से 5:30)
World Bank Cut Global & India's Growth Forecast
Jun 11, 2016

The World Bank recently lowered its global growth forecast, warning that risks to growth have increased since its earlier projection in January.

Why it is so?

  • The World Bank said in its June report on global economic prospects that the world economy will grow at 2.4% in 2016 and at 2.8% in 2017, lower than the earlier forecast of 2.9% and 3.1%, respectively, mainly on account of a slower than expected recovery in advanced economies.

Economies of India & China

  • India will remain one of the fastest growing major economies, ahead of China, for the next three years.
  • The Bank lowered India’s growth projections marginally by 0.2% to 7.6% for 2016-17 and 7.7% in 2017-18, citing the drag by exports on economic activity.
  • It maintained China’s growth projections at 6.7% and 6.5% for 2016 and 2017, respectively.

Reasons behind Prediction for India

  • A global slowdown and fall in commodity prices have shrunk world trade projections. While India has benefitted from the fall in oil prices through a reduction in the import bill, its exports have shrunk for 17 consecutive months as of April. 
  • External risks such as volatility in global financial markets and fall in remittance inflows could impact the Indian economy.
  • Domestic risks include slow progress in the structural reform agenda including power sector reforms, tax reforms and land reforms, and vulnerabilities in corporate and banking sector balance sheets.
  • A slowdown in rural consumption hit by two years of poor monsoons, weak exports and sluggish credit growth to the corporate sector due to asset quality concerns in the banking sector are also risks to the Indian economy.
  • The World Bank’s growth projections for India are in line with the growth estimates put out by other agencies. The International Monetary Fund, in April, forecast that India will grow at 7.5% in 2016-17. The Reserve Bank of India has also projected growth at 7.6% in 2016-17. 

India’s Growth Rate 

Pointing to sluggish corporate lending despite five policy rate cuts by the Reserve Bank of India since 2015, the World Bank cut growth projections for India by up to three percentage points to 7.6-7.7 per cent for 2016-17 and 2017-18. Even then, India will continue to be the fastest growing major economy in the world.

In its January update, the multi-lateral agency had pegged India's growth at 7.9 per cent in both these fiscal years.

India's economy grew 7.6 per cent in 2015-16, two percentage points lower than predicted by the Bank in January.

Overall Economic Scenario in India

  • The Bank said despite five interest rate cuts since 2015, credit growth to the corporate sector remains sluggish because of stressed asset quality in the banking sector (especially for claims on the aviation, infrastructure, iron, and steel sectors.
  • Weak exports weigh on growth and February marked the 15th consecutive month of decline.
  • It also said rural incomes and spending should improve with the return to normal monsoons, as the benefits of direct transfers through the rolling out of the mobile banking initiative (Jan Dhan Aadhaar Mobile) are realised and improvements in agricultural productivity improve.
  • The bank said that growth in India picked up to 7.6 per cent in 2015-16, a 0.4 percentage point increase over that in 2014-15, driven largely by domestic demand. The economy rose 7.2 per cent in 2014-15.
  • The ongoing liberalisation of India's Foreign Direct Investment (FDI) regime, FDI to India surged 37 per cent from the launch of the 'Make in India' campaign in October 2014 to February 2016, with the computer software and automotive sectors attracting the bulk of this investment.
  • Manufacturing activity, though dampened by weak external demand, accelerated 9.3 per cent in the final quarter of Fiscal Year 15-16.
  • Increased public investment in power generation, roads, railways and urban infrastructure is contributing to an improved business environment and reduced supply-side constraints.
  • New sectors will continue to attract FDI. As of December 2015 some $ 45.7 billion (2.2 per cent of GDP) had been pledged under the 'Make in India' campaign.
  • Private investment will still be held back by infrastructure bottlenecks, a challenging regulatory environment, and by tight credit amidst the ongoing resolution of stressed assets in the banking sector.
  • If implemented as planned, continued fiscal consolidation from 2016 onwards should support investor confidence in India through future bouts of turmoil in global financial markets.

Helpline Number : 87501 87501
To Subscribe Newsletter and Get Updates.