New Delhi:
India’s potential growth could benefit from an accelerated implementation of an already ambitious reform agenda, the World Bank said in a new report warning that the global economy faces a “lost decade” due to nearly all drivers of economic progress in the recent history. fade away.
The report titled “Falling Long-Term Growth Prospects: Trends, Expectations, and Policies” said the world economy’s “speed limit” — the maximum long-term growth rate without causing inflation — will fall to its lowest point in three decades by 2030.
“In the decade before COVID-19, a global slowdown in productivity – which is essential for income growth and higher wages – was already raising concerns about the long-term economic outlook,” the report said.
The report went on to say, adding that investment growth is weakening, the global labor force is growing sluggishly, the reversal of human capital has been triggered by the coronavirus pandemic and international trade growth is barely matching GDP growth.
“The result could be a lost decade in the making – not just for some countries or regions, as has happened in the past – but for the entire world. Without a large and broad policy push to rejuvenate it, the global average would potentially GDP growth rate … is expected to decline to a three-decade low of 2.2 percent annually between now and 2030, down from 2.6 percent in 2011-2021,” it said.
The analysis shows that global potential GDP growth could be boosted by as much as 0.7 percentage points — to an annual average of 2.9 percent — if countries adopt sustainable, growth-oriented policies that turn an expected slowdown into an acceleration of global potential GDP growth.
While India is growing at a faster pace than its peers, “its growth could benefit from accelerated implementation of an already ambitious reform agenda,” it said.
Tackling the aftermath of India’s financial crisis could yield significant growth, according to the report.
“India has a less developed financial system than many of its counterparts, with a strong state presence. To improve the efficiency and depth of the sector, reforms could be introduced to further rationalize the role of banks in the public sector , a level playing field in the banking sector, and promote the development of capital markets,” the statement said.
On India’s infrastructure deficit, the World Bank said reforms proposed by the Task Force on the National Infrastructure Pipeline should be implemented, including improving project preparation processes, increasing private sector capacity and participation, improving contract enforcement and dispute resolution, and improving sources of funding.
The World Bank said investment growth in India slowed from an annual average of 10.5 percent in 2000-10 to 5.7 percent in 2011-21.
“In India, structural bottlenecks, including unreliable power supply, poor road and rail networks and heavy administrative requirements for business, have been barriers to investment over the past decade, along with weaknesses in the banking sector that have limited investment financing,” the report said. .
Private investment, accounting for nine-tenths of total investment, stagnated in fiscal year 2013/14 as global financial conditions deteriorated rapidly and capital outflows accelerated. In subsequent years, investment growth remained limited compared to the previous decade.
The slowdown, it said, is attributed to a range of factors, including overcapacity in manufacturing after the 2009 global recession, policy uncertainty and reforms enacted by the Reserve Bank to address financial sector weaknesses, particularly at state banks.
“Stress in the financial sector came to the fore again a few years later and resulted in an abrupt slowdown in private fixed investment in fiscal year 2019/20,” the report said.
COVID-19 led to a 10.4 percent contraction in fixed asset investment in India in FY 2020/21, but a strong recovery followed, aided by the government’s investment drive.
“For example, in FY 2021/22, investment recovered by 15.8 percent, making the deficit from the pre-pandemic trend among the smallest in the South Asia region.
“Public investment in the 2022/23 budget is expected to increase by a third, and there is also a stimulus program to boost private investment. Boosting public investment during years of private sector weakness (2013-16, 2020) played a the government has an important anti-cyclical role,” it said.
The report highlighted India’s recent shift in focus from government spending to infrastructure investment, consolidation of labor regulations, privatization of underperforming state-owned properties, and modernization and integration of the logistics sector.
For example, goods and services taxes introduced in India in 2017 doubled India’s tax base in four years, it said.
“In India, the burden of regulatory compliance, delays in utility connections, difficulties in obtaining permits to start and run a business, high taxes and rigid labor markets increase the cost of doing business and discourage investment.
“In addition, investors in India cite restrictive labor laws as factors limiting female employment and discouraging adoption of new technologies, reducing productivity in manufacturing,” it added.
(Except for the headline, this story has not been edited by DailyExpertNews staff and is being published from a syndicated feed.)