World Bank says Indian economy has recovered from the impact of demonetisation, GST

The World Bank said on Sunday that India’s economy has recovered from the impact of demonetisation and the introduction of the Goods and Services Tax regime, and would grow at 7.3% in 2018 and 7.5% in 2019. The organisation, in its bi-annual South Asia Economic Focus report, said this would drive South Asia’s growth rate to 6.9% in 2018 and 7.1% in 2019.

“Around 80% of the region’s Gross Domestic Product is generated in India,” the report said. “Both demonetisation and GST created short-term disruptions in economic activity. As the inflation rate rebounded pushing real interest rates down, a recapitalization plan for banks was announced, and the effects of the two temporary shocks vanished, and growth bounced back.”

India’s recovery will once again make South Asia the fastest growing region in the world, the report said. East Asia overtook South Asia’s growth rate after Indian economic growth decelerated.

“The acceleration of growth that we see in the region is not necessarily that all countries in the region are doing much better, it’s a mixed picture,” World Bank chief economist for South Asia Martin Rama said in an interview with the Hindustan Times. “But given the size of India, India’s bouncing back is driving the growth.”

However, the South Asia Economic Focus report added that job creation remained a concern for India. It said India needed to create 81 lakh jobs a year to maintain its employment rate, which has been declining as women leave the labour market.

Women were dropping out of the job market in areas which were “borderline” between rural and urban regions, where farming jobs had disappeared but others had not been created, Rama said.

The World Bank official added that he was “very confident” India could keep growing at 7% to 8% “without much effort, just good policies”, but it was doubtful whether it could approach double-digit growth rate again in future.