Private investment to lead India GDP growth in 2018-19, says World Bank
Home › Private investment to lead India GDP growth in 2018-19, says World Bank
 
Although private investment growth in India will remain challenging in the short term, it will eventually pick up in 2018-19 to overtake private consumption as the main driver of economic growth, the World Bank said in its latest ‘India Economic Update’.

Gross fixed capital formation (GFCF), which indicates investment demand in the economy, is forecast to grow by 3.3% in FY17, jump to 6.8% in FY18 and overtake private consumption (7.4%) in FY19 with 8.8% growth to become the major growth driver.

This is due to the key reform steps taken by the Government such as implementation of bankruptcy law and goods and services tax, higher infrastructure push and continued inflow of foreign direct investment, the Bank said. “Abolition of Foreign Investment Promotion Board will further support investment growth. Moreover, RBI efforts to reform banking sector in addition to a higher steady state of banking sector deposits post-demonetization will eventually allow credit growth to recover robustly and sustainably,” it added.

Private investment continues to face impediments in the form of corporate debt overhang, stress in the financial sector with rising bad loans, excess industrial capacity, and regulatory and policy challenges, putting downside pressures on India’s potential growth.

“On the positive side, consumption will remain robust, given declining inflation and solid household credit growth, and pick-up in trade is likely to endure at least through the first half of the fiscal year, helping lift investment,” the Bank said.

Sunil Kant Munjal, chairman, Hero Enterprise agreed with the World Bank’s assessment that next year could see a revival in private investments. “Companies do not invest because they see little scope for return. Now capacity is getting absorbed and consumption is increasing, companies are looking at investing in the months to come,” he added.

The Bank expects Government to maintain its momentum in public infrastructure spending, with government capital expenditure budgeted at 3% of GDP in FY18, flat from previous year. “Private investment is expected to pick up, but only gradually as recovery may be protracted, in part due to relatively longer-term effects of demonetization on cash-reliant construction activities (household investment, largely housing, accounts for approximately 1/3 of total investment), corporate leverage and the persistent weakness in credit growth, which suggest that the financial sector may require more time to adjust,” it said. (Livemint.com, June 1, 2017)