3 reasons why Indian economy is poised to grow faster than expected in 2018

By: | Updated: March 14, 2018 11:01 AM

Disruptions caused by the two structural changes -- demonetisation and the GST -- are wearing off and optimism in domestic demand is soaring because of which Indian economy is poised to grow faster than expected in the year 2018 against the backdrop of rising trade protectionism, increasing crude oil prices and volatile market conditions. Here are three reasons

3 reasons why Indian economy is poised to grow faster than expected in 2018. (Image: FE)

Disruptions caused by the two structural changes — demonetisation and the GST — are wearing off and optimism in domestic demand is soaring because of which Indian economy is poised to grow faster than expected in the year 2018 against the backdrop of rising trade protectionism, increasing crude oil prices and volatile market conditions, Deloitte Voice of Asia report said.

While India in 2017 seen its GDP growth slumping to a three-year-low mainly due to destocking ahead of the GST implementation, the second half of the year picked up at a growth rate of 7.2%. Multiple macro-economic factors show a turn-around of the Indian economy in the year 2018. The Deloitte Voice of Asia report has identified three pillars that will help Indian economy to grow at a faster rate in 2018.

Improved domestic conditions

The “negative effect” demonetisation and the implementation of the GST is wearing off now as there is high optimism in domestic demand in the form of consumption and revival in small-scale business activities. This is also resulting in an increase in FDI flows into the country. Moreover, India’s jump on World Bank’s Ease of Doing Business Index is helping build optimism in India’s story and is consequently attracting more investors to the country. The GST is also taking Indian economy slowly and steadily towards greater formalisation.

Increased infrastructure spending initiatives

There is a lot of focus on infrastructural development. The government in the Budget 2018 allocated a massive Rs 5.97 lakh crore to infrastructural development. The report says that with the country aim to pave more than 80,000 kms of roads by March 2022, India’s infrastructural development is laudable. “Further, it has taken steps to collaborate with international partners to speed up the process of infrastructure building,” the report said.

Recovery in global demand to boost India’s growth

The global economy has turned a corner, with demand rising robustly since late-2016 and it is likely to accelerate further. More than 75% of the world economy is now enjoying an upswing, with forecasts anticipating global growth to rise to 3.6% in 2017 and 3.7% in 2018, from 3.2% in 2016. Growth in advanced economies is at its fastest in three years, with OECD lead indicators pointing to slightly above the trend growth.

As the global economy is in its heights after recovering from the shocks of 2008 crisis, India should take the benefit of this opportunity. India’s ability to stave off the economic gales was helped by the fact that it is much less dependent than most countries on global flows of trade and capital. And therefore, the recovery in global economic conditions should help India boost its domestic growth.

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