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India will catch up with China's growth in 2 years: World Bank

By Lalit K Jha
January 14, 2015 13:49 IST
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India will catch up with China's growth at 7 per cent during 2016-17, the World Bank has forecast, saying India's economy has recovered in the wake of the economic reform measures taken by the new Indian government, falling oil prices and lower interest rates.

"India will catch up with China's growth in the year 2016 and 2017," World Bank Chief Economist and Senior Vice-President Kaushik Basu said.

"China's growth will remain high, but will begin to taper very gently, reaching 6.9 per cent in 2017," he said as the world Bank released the 'Global Outlook: Disappointments, Divergences, and Expectations Global Economic Prospects'.

The World Bank in its report forecast a growth rate of 7 per cent each in the fiscal year 2016 and 2017 as against China’s 7 per cent and 6.9 per cent respectively.

This would be for the first time in recent past that India's growth rate would catch up with that of China.

The World Bank estimated a growth rate of 5.6 per cent in 2014 and has forecast a growth rate of 6.4 per cent in 2015, while that of world's second largest economy China as 7.4 (estimated) in 2014 and 7.1 per cent (forecast) in 2015.

In its report, the bank said growth in South Asia rose to an estimated 5.5 per cent in 2014 from a 10-year low of 4.9 per cent in 2013.

"The upturn was driven by India, the region's largest economy, which emerged from two years of modest growth," it said.

Regional growth is projected to rise to 6.8 per cent by 2017, as reforms ease supply constraints in India, political tensions subside in Pakistan, remittances remain robust in Bangladesh and Nepal, and demand for the region's exports firms, it said.

"Past adjustments have reduced vulnerability to financial market volatility. Risks are mainly domestic and of a political nature. Sustaining the pace of reform and maintaining political stability are key to maintaining the recent growth momentum," the report said.

According to the bank said, implementation of reforms and deregulation in India should lift FDI.

"Investment, which accounts for about 30 per cent of GDP, should strengthen, and help raise growth to 7 percent by 2016, although this is contingent on strong and sustained progress on reforms. Any slackening in the reform momentum could result in a more modest or slower pace of recovery," it said.

A recovery in exports, declining oil import bills and strong remittance inflows are helping to narrow current account deficits, it said, adding that a particularly sharp compression occurred in India where the deficit printed at 2.2 per cent of GDP in the third quarter of 2014, a 4.7 percentage point decline relative to its peak in fourth quarter of 2012.

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Lalit K Jha in Washington
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