इंडियन आवाज़     23 Feb 2019 12:43:28      انڈین آواز

India—all set to emerge as fastest growing economy


India is set to emerge as the fastest growing economy once again. The United Nations has recently put out a report, saying, India’s economy is expected to grow at 7.2 per cent in 2018 and 7.4 per cent in 2019.

Even though this growth rate still falls short of government’s expectations of 8 per cent in 2017-18 it may still help India win the fastest growing economy title from China. In 2016 India has overtaken China as the fastest growing major economy in the world, expanding by 7.3 per cent and cementing its position as one of the sole bright spots in a failing global economy.


But in the beginning of 2017 growth momentum of Indian economy has come under strain following multiple economic disruptions including demonetisation in November 2016 and the hurried introduction of the new Goods and Services Tax (GST) regime since July 2017.

India virtually lost the fastest growing tag in early 2017 after the BJP-led NDA government outlawed old Rs 500 and Rs 1000 currency notes, bringing cash-based economic activities to a halt. Even before the Indian economy could recover from the woes of note ban, the government rolled out the biggest tax reform – GST. It further aggravated the economic activities, bringing down the Gross Domestic Product (GDP) growth rate to a three-year low of 5.7 per cent at the end of the first quarter of the current fiscal 2017-18.

However, at that juncture overwhelming section of economists had opined that the slowdown in India’s growth momentum would be in short term and given the inherent resilience of the Indian economy the growth rate would pick up in the medium term. As the latest GDP data show in July-September quarter in 2017, India gained marginal recovery and recorded 6.3 per cent GDP growth.

Affirming its confidence in the resilience of the Indian economy, the United Nations in its report titled: World Economic Situation and Prospects 2018 has said that the outlook for India remains largely positive, supported by robust private consumption and public investment as well as ongoing structural reforms.

“Hence, GDP growth is projected to accelerate from 6.7 per cent in 2017 to 7.2 per cent in 2018 and 7.4 per cent in 2019,” the report said. With this rate of growth, India will beat China in GDP growth as Beijing is likely to keep 6.5 per cent growth target in 2018.

The United Nations is not the only financial institution with strong economic growth forecast for India. Several leading financial services have forecast robust pcik up in India’s GDP growth rate in coming years. For instance, global financial services firm Morgan Stanley has projected that India’s GDP growth is expected to grow from 6.4 per cent this year to 7.5 per cent in 2018 and further to 7.7 per cent in 2019. It further said that corporate return expectations and balance sheet fundamentals were improving, and a strengthening financial system should be able to meet investment credit demand. “This sets the stage for a fully fledged recovery in 2018, and we expect real GDP growth to accelerate from 6.4 per cent in 2017 to 7.5 per cent in 2018 and further to 7.7 per cent in 2019,” Morgan Stanley has forecast.

Echoing similar views US-based credit rating agency Moody’s Investors Service has recently said that the India’s GDP growth will gradually accelerate to around 8 per cent over the next three to four years. According to Moody’s, the economy will grow 7.5 per cent in fiscal year 2017-18 and 7.7 per cent in fiscal year 2018-19. The agency further said that the structural reforms such as GST and bankruptcy code will help reduce inefficiencies and improve trend growth over the long run. The agency, however, cautioned that persistent banking sector weakness from a high proportion of Non-performing assets on bank balance sheets will weigh on growth, if not resolved, by constraining credit for investment related activity.

Global investment banking firm Nomura has pegged India’s GDP growth in 2018 at 7.5 per cent. In a report, the Japanese investment firm has said that the Indian economy is on the cusp of a cyclical recovery and the government has continued to implement structural reforms and prudent macro policies, the tangible benefits of which may be harder to pinpoint right now, but over time will be positive for growth. “We remain bullish on India’s macroeconomic outlook,” Nomura said in its Asian economic outlook 2018. Nomura expects the growth in the first half of 2018 to be at 7.8 per cent. “We expect a growth of 7.3 per cent in 2019 – a solid print, aided by manufacturing and private services on the supply side and investment and private consumption on the demand side,” the report said.

It is being overwhelmingly felt that growing optimism shown by leading global financial institutions about growth potential of the Indian economy will help India as a major destination for Foreign Direct Investment (FDI). For instance, the upgrade by Moody’s could position India as an attractive investment destination apart from making it easier for companies to raise resources abroad. Importantly Moody’s has observed reforms such as introduction of the Goods and Service Tax and bold step like demonetisation by the Modi government would lead to greater formalisation of the Indian economy.

However, a word of caution from United Nations’ latest economic report India needs to be highlighted. The UN report cautions that the anaemic performance of private investment remains a key macroeconomic concern for India with gross fixed capital formation- as a share of GDP- falling to 30 per cent in 2017, from 40 per cent in 2010. It said the credit is subdued and there is low capacity utilisation in some industrial sectors while the banking and corporate sectors feel the balance sheet problems. “In this environment, vigorous public investment in infrastructure has been critical in propping up overall investment growth,” the report has rightly suggested.

It is being felt that as reforms hold key to boost growth momentum and enhance prospective investors the BJP-led NDA government, which is now credited with electoral victories in string of key assembly polls, should take full advantage of its last full Budget in February 2018, to begin rolling out key reforms.

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