World Bank has warned that India’s inflation still remained uncomfortably high and the new government should avoid fiscal slippages in the process of reviving growth. These comments from the World Bank’s director came right after Finance Minister Arun Jaitley warned of tough measures in his first budget on July 10, citing that “mindless populism” needs to be checked as India aims to boost growth.
The global body underlined that while inflation was a long threat to the economy, it suggested that it was possible to revive growth without letting go off on fiscal deficit targets. The previous government's interim budget in February set a deficit target of 4.1% of GDP for the current financial year. The gap has already hit $40 billion or nearly half of the target for the full fiscal year that started in April. However, Finance Minister Arun Jaitley may revise upwards the fiscal deficit target for the current fiscal to 4.4- 4.5%.
The World Bank director also suggested that implementing a proposed goods and services tax (GST) could be a game changer that would simplify country’s complex array of taxes and levies and boost its growth trajectory. It highlighted that GST being a big ticket item could unify India as market and could also help it offset the impacts of rising oil import costs or weak monsoon rains.
In its report last month, World Bank stated that it expected the Indian economy to grow by 5.5% in the current fiscal year and 6.3% in the 2015-16 fiscal year. However, it highlighted India could outperform next year's projection only if Modi's government presses on with reforms.
