WASHINGTON: The recent slowdown in India’s economic growth is an “aberration” and mainly due to a temporary disruption caused by preparations for the new national tax GST, the World Bank said on Thursday, also stating that it will get corrected in the coming months.
World Bank President Jim Yong Kim also said that the Goods and Services Tax (GST) will have a hugely positive impact on the Indian economy. He was talking to reporters on a conference call ahead of the annual meeting of the International Monetary Fund and the World Bank in Washington. Finance Minister Arun Jaitley will lead the Indian delegation at next week’s meeting.
“There’s been a deceleration in the first quarter, but we think that’s mostly due to temporary disruptions in preparation for the GST, which by the way is going to have a hugely positive impact on the economy,” Mr Kim said to questions on the slowdown in India’s growth in the first quarter, which Opposition parties and several economists have attributed to last year’s demonetisation and GST.
India’s Gross Domestic Product (GDP) grew 5.7 per cent on a year-on-year basis during the April-June period (Q1). The GDP growth rate for the same quarter last year was 7.9 per cent. During the previous quarter (January-March) of this year, GDP grew by 6.1 per cent.
The World Bank president said, “We think that the recent slowdown is an aberration which will correct in the coming months, and the GDP growth will stabilise during the year. We’ve been watching carefully, as Prime Minister (Narendra) Modi has really worked on improving the business environment, and so, we think all of those efforts will pay off as well.”
The Centre too has emphasised that the slowdown is temporary, with PM Modi stressing that the government is “committed to and capable” of reversing the setback. In an address to company secretaries in Delhi on Wednesday, PM Modi made a strong defence of his government’s economic policies, dismissing critics as “people who sleep well only after they spread a feeling of pessimism.”
Union minister Piyush Goyal told NDTV yesterday that “the economy is in very good shape” and that the slowdown in growth is temporary, caused by the big and complex transition to a new national tax regime GST.
At next week’s meeting, both the World Bank and the IMF are expected to come out with new GDP figures and growth projections for India and the rest of the world.
Mr Kim said after years of disappointing growth, the global economy has begun to accelerate, and trade is picking up as well, but investment remains weak.
On India and human capital, Mr Kim said Prime Minister Modi has made a huge commitment to sanitation issues, and called ‘Swachh Bharat’ one of the “most effective programmes” anywhere.
“I know that Prime Minister Modi himself personally is very committed to improving opportunities for all of India. But, India has a lot of challenges. We look at some of the educational outcomes, we’ve looked at some of the health outcomes, and India has room to improve, like most other countries,” he said.
“Our job is to take the political will and commitment that Prime Minister Modi has clearly demonstrated and has communicated to everyone, and then bring to India the most effective intervention that will, as quickly as possible, improve the stock of human capital,” Mr Kim said.
That, he said, was the message for every country in the world.
This year, the Bank is producing a new report in a series on ‘The Changing Wealth of Nations’. For the first time, it has added human capital to its wealth analysis, in addition to produced capital, things like machinery and buildings, natural capital, energy, forests, agricultural lands, and net foreign assets, Mr Kim said.