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On 13th of October the World Bank said that after a broad-based statement in the initial quarters of this fiscal year, India’s growth rate is projected to fall to 6%.
It has sharply dropped the country’s economic growth projection for the financial year to 6% against the original estimate of 7.5%, this was done based on the number of data points showing the weak demand, low investment, and vulnerabilities in India’s banking sector.
The Bank by projecting has merged with the host of agencies that have demoted the forecast since the RBI pared its estimate at the start of the month of October.
The bank in its latest edition of the South Asia Economic Focus said that the country was anticipated that it would progressively recover to 6.9% in 2021 and 7.2% in 2022 as it was certain that the monetary stance would remain accommodative, given the benevolent price dynamics. The report was released ahead of the annual meeting of the World Bank with the International Monetary Fund.
It was noted in the report that India’s economic growth slowed for the second consecutive year and the current account deficit had expanded to 2.1% of the GDP in 2018-19. It was also noted in the report that India’s growth rate, which was faster than china’s until a few quarters back, is now expected to be slower than Bangladesh and Nepal.
World Bank: In brief
The World Bank to develop nations offers a blend of legal development, legal lessons from practice and current research on the many ways in which the application of law and the development of Justice system helps in the reduction of poverty, economic expansion and the rule of law.
World Bank publishes many volumes regarding the development of nations, in one of these it gave key ideas relating to the legal forum and explores the role of equity, in the expansion process, emphasizing how legal and regulatory frameworks and the equitable justice system can do much to equal the political and economic domain.
In the present projection made by the World Bank it has pointed out the various factors that could lead to the falling of GDP, which are the application of GST, demonetization, stress in the rural areas and high youth unemployment in urban areas, and has given its perspective that how these will affect the economy and subsequently will have a keen interest in the legal effects of such policies.
Significance of this Projection:
The projection done by the World Bank is economic forecasts that are very important for determining monetary policy and fiscal policy. They describe the expected future behaviour of whole or part of a country’s economy. The government and the businessmen can determine their strategy, budgets and multi-year plan for the upcoming year.
Thus the significance of this projection made by the World Bank lies in the fact that India with the help of this projection is able to easily identify the factors that will be responsible for the low rate of GDP and thus formulate its fiscal/ monetary policies and the budget, by keeping the factors in mind, in such a way that the effects of the factors can be lessened ad thereby increases the country’s GDP.
What is economic growth?
Economic Growth is defined to be the increase in the production of economic goods and services within a specified period. It is never uniform and creates more profit for the country. Almost universally, rates of economic growth are measured both in terms of increase in GNP/NNP and increase in overall income. World Organisations such as the World Bank and IMF have been employing both these measures of economic growth in their annual world development report for comparing growth and level of living of the developed and developing countries.
Factors affecting economic growth:
Various factors affect the economic growth of a country. The main factors are as follows:
• Human resources: It is referred to as one of the most important contributing factors of economic growth of a country. the quantity and quality of the available human resources affect the growth directly. The quality of the human resource depends on the skills, abilities, education and training. For the development of economic growth, the human resource has to both adequate in number and trained. If either of the requirements is absent it will have a direct effect on economic growth.
• Natural Resources: These are those resources that are produced by nature, and could be found either on the land, like landscapes, water and air, or beneath the land, like metals, non-metals, oils etc. The economic growth of a country depends on the efficient utilization or exploitation of natural resources. A country having an educated and skilled workforce with rich natural resources will take the economy of the country on the path of growth.
• Capital Formation: It is defined as the producing and acquiring of manmade products like buildings, machinery, power, transportation, and means of communications. With the help of capital formation availability of capital per workers can be increased, and consequently the production of labour increases which ultimately increases the output and growth of the economy.
• Technological Development: It involves the use of the scientific method and production technique. It helps in the increase of productivity with the available limited resources. On the other hand, inappropriate technology leads to a high cost of production. Thus, the country that has worked to develop their technologies have grown more rapidly when compared to those countries that have less focus on technological development.
From the above discussion, I can conclude that the projection given by the World Bank is very decisive for the Indian economy. The Indian Government should, while keeping in mind the various data points mentioned by the World Bank in its report, make the future fiscal and monetary policies, and the upcoming Budget to balance the country’s GDP and prevent it from further falling.
Moreover, the government should focus on facing the challenge of softening private consumption and the structural factors behind weak investment as said by the World Bank, and which would require the restoring the health of the financial sector.
-This article is brought to you in collaboration with Marisha Shandilya from Banasthali Vidyapith, Jaipur