NEW DELHI: India needs to activate “stalled engines” including private investment and rural demand to sustain 7.6% growth rate in the coming years, the World Bank said on Monday. The global lender recently lowered India’s growth forecast for this fiscal to 7.6% from its earlier estimate of 7.8% and to 7.7% from 7.9% for 2018-19.
“To remain on this growth path and sustain growth at 7.6% into FY17, the challenge for the Indian economy is to activate the stalled engines — agricultural growth and rural demand; trade; and private investment, while ensuring that demand from urban households and public investments do not run out of fuel,” the World Bank said in its ‘India Development Update’ report. It said that the most significant near- and medium-term risks stem from the banking sector and its ability to finance private investment, which continues to face several impediments in the form of excess global capacity, and regulatory and policy challenges, in addition to corporate debt overhang.
“India’s financial sector has performed well on many dimensions and can be a reliable pillar of future economic growth. However, accelerating structural reforms and addressing the nonperforming asset (NPA) challenge remain urgent tasks,” said Frederico Gil Sander, senior country economist and main author of the twice yearly India Development Update. The update suggested two key reform fronts for the financial sector — first, acceleration of the ongoing structural transformation of the financial sector and, second, addressing the NPA challenge.
The financial sector reform should be more market-oriented, for example, by providing a roadmap for relaxing government mandates on banks, besides recapitalisation of public sector banks and providing tools for banks to manage stressed assets to address the issue of NPAs at branch level. “There are good reasons for confidence in India’s near-term prospects.
However, a pickup in investments is crucial to sustain economic growth in the longer term. The recently approved Bankruptcy Code is helpful in this regard,” said Onno Ruhl, World Bank’s country director in India.