India's economic fundamentals remain strong: World Bank

India remains the fastest growing economy in the world – economic fundamentals are strong, and reform momentum continues. GST is on track for implementation in the second quarter of the fiscal year, and is expected to yield substantial growth dividends from higher efficiencies, and raise more revenues in the long term, says a new World Bank report.

India remains the fastest growing economy in the world – economic fundamentals are strong, and reform momentum continues. GST is on track for implementation in the second quarter of the fiscal year, and is expected to yield substantial growth dividends from higher efficiencies, and raise more revenues in the long term, says a new World Bank report.#

 

The fundamentals of the Indian economy remain strong, with robust economic growth, strong fiscal consolidation, low current account deficit, higher agricultural output, growing FDI, low inflation and higher wages in rural areas, says the May 2017 edition of the Indian Development Update.

 

However, timely and smooth implementation of landmark reforms such as the GST and a new code to deal with bankruptcies, as well as decisive action to resolve the NPA challenge of public sector banks, is crucial to enhance the economy’s potential growth, the report adds.

 

The report notes that India will achieve a major reform of indirect taxes through the GST without increasing the burden on the poor. Given the efficiency and revenue gains that the reform will eventually achieve, the overall impact of the GST on equity and poverty is likely to be positive.

 

“India remains the fastest growing economy in the world and it will get a big boost from its approach to GST which will – reduce the cost of doing business for firms, reduce logistics costs of moving goods across states, while ensuring no loss in equity,” said Junaid Ahmad, World Bank country director in India.

 

Commenting on demonetisation, the report says, “In the long-term, demonetisation has the potential to accelerate the formalisation of the economy, leading to higher tax collections, and greater digital financial inclusion provided measures such as increased use of property taxes is taken in the areas of tax policy and administration, and share of the population with access to the internet and digital means of payments are increased.” The implementation of the GST is a key complementary reform that will support formalisation, as firms have a strong incentive to register with GST to obtain input tax credits, the Update adds.

 

The Update is also optimistic that growth in private investments is likely to pick up once there is greater certainty on the global outlook, as well as when implementation of the GST is more advanced.

 

A special focus of the report is on the low female labour force participation of women in India. “Low female labor force participation, however, remains a serious concern. Higher level of women participation in the economy can help propel India closer to double digit growth,” says Ahmad.

 

For India to achieve higher growth, it needs to create safe, flexible and well-paying jobs for a large number of women who are currently not in the labor market. The key to close the gender gap is to create more jobs, especially regular salaried jobs that are flexible and can be safely accessed by women, the Update concludes. (RKS)