As economic reforms gain momentum, India's growth is likely to accelerate towards its high long-run potential. Measures such as a national Goods and Services Tax (GST), accompanied by a dismantling of inter-state check posts, can be transformational and significantly improve the domestic and international competitiveness of Indian manufacturing firms, said the latest India Development Update of the World Bank.
According to its estimates, simply halving the delays due to road blocks, tolls and other stoppages could cut freight times by some 20-30 percent and logistics costs by an even higher 30-40 percent.
This alone can go a long way in boosting the competitiveness of India's key manufacturing sectors by 3 to 4 percent of net sales, thereby helping India return to a high growth path and enabling large scale job creation.
According to the Update, a twice yearly report on the Indian economy and its prospects, India's economic growth is expected to rise to 5.6 percent in FY15, followed by further acceleration to 6.4 percent and 7.0 percent in FY 2016 and FY 2017.[1]
"With economic reforms gaining momentum, long-term prospects for growth remain bright for India," said Onno Ruhl, World Bank Country Director in India. "To realize its full potential, India needs to continue making progress on its domestic reforms agenda and encourage investments. The government's efforts at improving the performance of the manufacturing sector will lead to more jobs for young Indian women and men."
Highlighting some of the significant trends in the Indian economy, the Update said growth has rebounded significantly due to a strong industrial recovery. Capital flows are back, signaling growing investor confidence as inflation has moderated from double digits, exchange rate has stabilized, and financial sector stress has plateaued.
Growth is expected to strengthen over the medium-term. WPI inflation is expected to moderate to 4.3 percent in the current fiscal, from 6.0 percent in the previous year while the FY2014 current account deficit of 1.7 percent is expected to widen marginally to 2.0 percent as import demand picks up and capital inflows rise. Fiscal consolidation is expected to continue through expenditure restraint, although there is room for revenue mobilization to strengthen, the Update cautions.
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