World Bank predicts India will be the fastest growing economy in 2017-18 at 7.2%

India will remain the fastest growing economy in the world at 7.2 per cent in 2017-18 on the back of reforms, domestic consumption and improvement in trade, the World Bank today said.

In its May 2017 India Development Update, it suggested that a higher level of women participation in the economy can help propel the country closer to a double digit growth.

There were signs of a slowdown in early part of last fiscal but a favourable monsoon lifted the economy before being temporarily hit due to demonetisation in November 2016.

Demonetization caused an immediate cash crunch. As a result, a modest slowdown is expected in Gross Domestic Product (GDP) growth in 2016-17 to 6.8 per cent, World Bank Country Director Junaid Ahmad said.

"Growth is expected to recover in 2017-18 to 7.2 per cent and is projected to gradually increase to 7.7 per cent in 2019-20," the report said.

A higher economic growth by 2019-20 is underpinned by recovery in private investments, which are crowded-in by the recent increase in public capital expenditure and improvement in investment climate, said the report.

Ahmad said: "India remains the fastest growing economy in the world and it will get a boost from its approach to GST which will reduce the cost of doing business for firms, reduce logistics cost of moving goods across states, while ensuring no loss in equity."

Overall the impact of GST on equity and poverty is likely to be positive, Ahmad said.

Stressing on more women in the workforce, the Washington headquartered multi-lateral funding agency said India's potential GDP growth can go up by a full percentage point if half the gap in female labour force participation rate with Bangladesh or Indonesia, is closed.

India should create more jobs, expand scope of regular salaried jobs that are flexible besides providing a safe environment to bridge the gender gap in job participation, Frederico Gil Sander, senior economist and author of the report said during a presentation here.

Giving comparative data, Sander said India's female labour force participation rate is uniquely low for all levels of education.

"Sixty-five per cent Indian women with college degrees are not working, whereas in Bangladesh 41 per cent and in Indonesia and Brazil only 25 per cent of women graduates are not working," Sander said.

For India, fundamentals are strong with robust economic growth, strong fiscal consolidation, low current account deficit, higher agricultural output, growing foreign direct investment, low inflation and higher wages in rural areas.

However, there are significant risks to India's growth outlook owing to uncertain global environment including the rising protectionism as well as slowing Chinese economy that may hamper external demand, the report said.

Private investment is lagging due to "corporate debt overhang" and financial sector is stressed with high levels of non-performing assets (NPAs) of the banks.

Subdued private investment would put downside pressure on India's potential growth, besides a rapid increase in global oil and commodity prices.

"On the other hand, smooth implementation of Goods and Services Tax (GST) and faster resolution of banking sector stress could prove to be an upside risk to economic activity," the report said.