By Arul Louis
United Nations, May 16:
Rising up from the stumbles of demonetisation, India’s economic growth next year is expected to almost touch the 8 percent mark by rebounding to 7.9 percent fueled by sound monetary policies and a boost from reforms, the UN said in a report released Tuesday.
The mid-2017 update to the UN World Economic Situation and Prospects report raised the figure by 0.3 percent from 7.6 percent projected at the beginning of this year.
“Despite temporary disruptions from the demonetization policy, economic conditions in India remain robust, underpinned by sound fiscal and monetary policies and the implementation of key domestic reforms,” the report said.
However, for the current year, the report by the UN Department of Economic and Social Affairs (UNDESA) cut the growth rate by 0.4 percent to only 7.3 percent, down from the 7.7 percent it estimated in January.
Explaining the revision, Dawn Holland, the Senior Economic Affairs Officer, said: “The slower growth this year and the faster growth next year are more a shift in the timing of expenditure, which is largely related to the demonetisation.”
It “did have an impact slowing domestic demand in the short term but we don’t see this having a longer term impact. It is a transitory effect on the economy, which still remains one of the fastest growing countries in the world,” she told reporters.
“We really see (that) the dynamics of India have shifted very much,” she said.
Last year’s growth rate was 7 percent, the report said.
India is expected to keep its lead as the world’s fastest growing major economy in a world struggling to reach a 2.9 growth next year with the developed economies stuck at 1.8 percent.
UNDESA, however, also warned that the “stressed balance sheets in the banking and corporate sectors will prevent a strong investment rebound in the near term” in India.
Next year’s 7.9 percent growth estimate for India is higher than the recent projections by other recent reports. Last month the International Monetary Fund fund estimated the growth rate to be 7.7 percent during 2018-9.
The UN Economic and Social Council for Asia and the Pacific (ESCAP) 2017 survey last month said it expected India’s economy to grow by 7.5 percent next year.
For the current fiscal year, IMF’s growth projection for India is 7.2 percent. ESCAP pegged this year’s growth at 7.1 percent.
About the differences between the projections, Holland said that UNDESA doesn’t work with the IMF although they work from the same basic data and the variations may be because of the time period for the date used.
The report said that a cloud of uncertainty hung over the world economy. Faster than expected interest rate hikes by the US could set off capital outflows affecting emerging economies, it said.
Holland, however, said: “We don’t see a downturn in the short term.”
Heightened uncertainty over international policy could hinder a strong rebound in private investment globally, the update said.
Lenni Montiel, the Assistant Secretary-General for Economic Development, said in a statement there was a “need to reinvigorate global commitments to international policy coordination to achieve a balanced and sustained revival of global growth, ensuring that no regions are left behind.”
On a positive note, the report said that global economic growth has strengthened in the last six months
“Helped by a moderate recovery in trade and investment, world gross product is expected to expand by 2.7 per cent in 2017 and 2.9 per cent in 2018,” it said. “While this marks a notable acceleration compared to 2016, growth in many regions remains below the levels needed for rapid progress towards achieving the Sustainable Development Goals” set by the UN for eradicating poverty.”
China has the second highest projected growth rate of 6.5 percent for this year and the next. East African region follows with a 6.5 percent estimate for next year.
The US growth rate is projected to be flat at 2.1 percent this next year and the next, up from 1.6 per cent last year. The European Union estimates are 1.7 percent this year and the next, down from last year’s 1.9 percent.
(Arul Louis can be reached at [email protected])