The World Bank has maintained its growth forecast for India at 7.5 percent for the current fiscal year (FY) - the same level it projected in June - although other multilateral agencies, as well as the Reserve Bank of India (RBI), believe that slower global growth will be a drag on the Indian economy going forward.
In its semi-annual South Asia Economic Focus released earlier this week, the international financial institution stated: “Led by a resilient India, South Asia is expected to maintain its lead as the fastest growing region in the world." It expects growth to rise to 7 percent in 2015, marginally up from 6.9 percent and to further accelerate to 7.4 percent in 2016. Incidentally, in its monetary policy review last month, the RBI cut its growth forecast for the current FY to 7.4 percent, from 7.6 percent previously. The IMF and the Asian Development Bank also pared back India's growth forecast, primarily in the wake of a softer global economy, exacerbated by declining exports.
The Fastest Growing Region in the World
However, the World Bank believes India is strong enough to power Asia to become the fastest growing region in the world. "Improved investor sentiment and resilience to external shocks are expected to increase India's growth rate to 7.5 percent in FY 2015 and further to 7.8 percent in FY2016," stated the World Bank report. It however cautioned that weak trade performance and financial sector vulnerabilities may stymie GDP growth. Notwithstanding, the World Bank feels solid growth in services, domestic consumption, a gradual rise of investments, limited exposure to financial turmoil and an improved external position have given most South Asian countries, including India, important policy space.
According to the World Bank's South Asia Chief Economist, Martin Rama: "While the region is now in a position of strength, structural constraints holding back export and investment growth do persist. To keep the momentum and accelerate job creation, governments should enact reforms easing infrastructure bottlenecks that pave the way to greater competitiveness." In fact, “Fiscal space remains limited, while financial sector vulnerabilities persist,” notes the World Bank. On the upside, inflationary pressure has eased due to low food and commodity prices, as well as a slowdown in the growth of administered prices. According to the World Bank report, South Asia could actually have cheaper prices, faster growth and bigger economies than previously thought. For those interested in investing in the world’s fastest growing region, read more about our Excel India Fund.