"The region's largest economy, India, would see growth rise to 5.7 per cent in fiscal year 2014 from 4.8 per cent last fiscal year with activity receiving a boost from a more competitive exchange rate and many large investment projects going ahead," the World Bank said in its latest edition of 'South Asia Economic Focus'.
Another multilateral agency IMF had yesterday forecast that Indian economy would recover from 4.4 per cent growth in 2013 to 5.4 per cent in 2014. The estimate triggered a rally on Indian bourses, with BSE benchmark Sensex surging close to 360 points to all-time closing high of 22,702.34.
The Indian rupee, which plunged to all-time low of 68.85 in August last year, has since then recovered to trade in 60-levels against the US dollar. The International Monetary Fund (IMF) had also cited export competitiveness as a reason for possible growth recovery.
The World Bank report said in India the problem is the banking sector's growing exposure to company debt. The fear is that this could ultimately affect the government's finances through its ownership of state banks and the need to prop up distressed but systemically important banks, it added.
In its twice-a-year 'South Asia Economic Focus', the World Bank forecast that economic growth in the region would rise to 5.8 per cent in 2015 from 5.2 per cent this year and 4.8 percent last year.
South Asian countries – Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka – appeared to have largely recovered from last year's financial turmoil caused by changes in US Federal Reserve monetary policy.
Many were rebuilding currency reserves while curbing current account deficits, it said.
But these successes on the external side were accompanied by looming problems in the domestic economy. Economic growth could be held back by unstable banking sectors, inflation, fiscal deficits and debt, and persistent shortfalls in energy and transport infrastructure across the region, it said.