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Editorial:Will the World Bank’s “Fastest Growing Economy” Tag Help Modi?

Port Wings, 17 January 2018

According to the World Bank’s Global Economic Prospects report released last week, India, after conceding its position as the fastest growing major economy to China for a year in 2017, is likely to reclaim the position in 2018 with growth expected to accelerate to 7.3% in the year,

The report projected China’s economic growth to slow to 6.4% in 2018 from 6.8% in 2017. The World Bank also revised India’s growth estimate for 2017 to 6.7% from 7% projected in October, blaming short-term disruptions caused by the newly introduced goods and services tax (GST) and a softer-than-envisioned recovery in private investment.

To be sure, the estimates are on a different fiscal year basis for each country. India’s fiscal year runs from April to March. China follows a January-December fiscal year.

The global economy, meanwhile, is experiencing a broad-based cyclical upturn, which is expected to be sustained over the next couple of years, although downside risks persist, the World Bank said.

However, the report also cautioned that “In contrast, growth in potential output is flagging, languishing below its longer-term and pre-crisis average both globally and among emerging market and developing economies. The forces depressing potential output growth will continue unless countered by structural policies.”

Thought the global growth is projected to edge up to 3.1% in 2018, India’s statistics office projected the economy to slow to 6.5% in 2017-18 from 7.1% a year ago. The economy has been hurt by the lingering impact of demonetization and disruptions caused by GST.

Also, Moody’s Investors Service in a report released last week said that India and China remain the fastest growth economies in the Asia-Pacific region.

A gradual moderation in growth in China and temporary slowdown in India will be balanced by robust growth trends in other Asian economies, it added.

Overall, the anticipation is that GST would benefit economic activity and fiscal sustainability by reducing the cost of complying with multiple state tax systems, drawing informal activity into the formal sector, and expanding the tax base in the medium term.

While these are the number games, which can be manipulated on either way to satisfy the local audience, the real test for the Modi-led NDA Government is lying ahead, as the country going to witness elections in eight important states in another two years.

It remains to see whether the government maintains the same tempo till the elections on economic front or just succumb to the pressure to win votes then.

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