India can grow at 6% without overheating: World Bank

The Indian economy has the potential to grow at only around 6 per cent without showing some effects of overheating, given current levels of workforce, total factor productivity and investments, a World Bank economist has posited.

Although the economy can, and has grown at well above the potential rate, a sustainable increase in the growth potential is possible only when there is an uptick on one or more of the contributors to growth potential — labour, productivity and capital — said Andrew Burns, an economist with the Bank and lead author of the lender’s ‘Global Economic Prospects 2014’ report.

The report, which was released in New Delhi on Friday, has reduced its global growth forecast by 0.5 per cent but said that the growth momentum is rising, powered by a recovery in developed economies.

Despite a slowdown, developing countries in South Asia are continuing to outperform global developing country average, the report said. India’s growth is expected to accelerate on the back of a revival in developed economies, which is expected to double the contribution of advanced economies to global import demand growth.

It added that stable or falling commodity prices, including energy, will help developing countries like India to accelerate growth.

The World Bank has projected a 5.5 per cent GDP growth for India in calendar 2014, rising to 6.3 and 6.6 per cent over the subsequent two years.

“Removing bottlenecks in energy supply, improving the business climate and unlocking stalled PPP contracts are some of the key areas that could be addressed in the short term to bring India back to a high growth trajectory,” said Onno Ruhl, Country Director, India for the Bank. Stating that the advent of a government with a stable majority and the ability, as well as the “stated intention” to take decisions, Ruhl said he was confident that India could pick up its growth rate to levels higher than projected.

Admitting that a poor monsoon could prove a drag on growth, the report pointed out that deficient rains can drag growth in South Asia by up to 0.5 per cent. Burns said this could be overcome by a pick up in other areas. The introduction of the Goods and Services Tax could prove “transformational”, he pointed out.

Terming the overall growth prospect for South Asia as “disappointing”, the Bank said developing economies need to shift focus from demand management (to curb inflation) to more growth focused policies.

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