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Report on Global Economic Prospects says India’s growth will reach 7.3% compared to China’s 6.4%; private investment is expected to revive.

New Delhi: Appearing bullish on India’s potential, the World Bank has projected the country’s economic growth to reach 7.3 per cent in FY 2018-19, outpacing that of China’s.

According to the World Bank’s Global Economic Prospects report released Wednesday, China is expected to grow at 6.4 per cent in 2018 compared to 6.8 per cent in 2017.

It also said India will grow at 7.5 per cent in FY 2019-20.

The Modi government had to increase public spending to revive growth as the economy went through a slump because the twin effects of GST and demonetisation.

The World Bank report, however, says that private investment is expected to revive as the private sector adjusts to the GST and a global trade recovery lifts exports.

The advance estimate of GDP released by the Central Statistics Office (CSO) last Friday pegged India’s growth at 6.5 per cent in FY 18 as opposed to 7.1 per cent in the previous fiscal (FY 17).

However, the World Bank report estimates the Indian economy to grow at 6.7 per cent in FY 18, slightly down from 7.1 per cent.

“This is due, in part, to the effects of the introduction of GST, but also to protracted balance sheet weaknesses — including corporate debt burdens and non-performing loans in the banking sector — weighing down private investment,” the report said.

Key takeaways from the report:

* The “Make in India” initiative and demonetisation are expected to encourage formal sector activity, broaden tax base, and improve long term growth prospects despite short term disruptions in the case of demonetisation.

* Though the introduction of GST has caused temporary disruptions in manufacturing leading to weakness in industrial production, it is expected to simplify tax compliance, deepen economic linkages between states, broaden the tax base and improve revenue collection.

* The Asset Quality Review by the RBI in 2015 has led to an increase in the recognition of non-performing assets on financial sector balance sheets.

* The recapitalisation of banks package ($32 billion) for public sector banks is expected to resolve the balance sheets of the PSU banks.

* Infrastructure spending in recent years has addressed supply side bottlenecks.

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