At a time when there was a lot of debate on the probable growth rate that India as the leading economy among the emerging economies is likely to achieve in the current and the next year, two international agencies have come out with the projected outlook for the global economy.
First, the World Bank in its Global Economic Prospects has identified poor global trade, weak investment and continued policy uncertainty have depressed world growth rate from 2.7% in 2015 to 2.3% in 2016 and back to 2.7% in 2017. It had lamented that fiscal stimulus measures announced but not implemented could have made possible a stronger growth.
Chinese growth is set to drop from 6.9% in 2015 to 6.7% in 2016 and is likely to drop down to 6.5% in 2017.
It has been established that Chinese growth is concentrated more in services than in industry and also investment growth has been moderated with strong consumption growth and this trend is likely to pervade in the coming years also.
India’s GDP is projected to experience a much higher fall from 7.6% in 2015 to 7.0% in 2016 and to get back to 7.6% in 2017. It is interesting to note that World Bank has assessed that robust private and public consumption has offset the slowdown in gross fixed capital formation and subdued industrial output.
This has been supported by the advance estimates of economic growth for FY17 brought out by CSO.
The report says that while private final consumption expenditure as a percentage of GDP at 55.5% in 2015-16 is marginally down to 55.2% in 2016-17, the share of fixed capital formation as a percentage of GDP has declined from 31.2% in last year to 29.1% in the current year.
It has been mentioned in the report that apart from subdued investment and sluggish productivity, the credit constraints due to impaired commercial banks’ balance sheets (NPAs) had an adverse impact on industrial activities.
It may be debated if supply side facilitators would not have been equally matched by strong demand factors (domestic and exports) it would have led to excess capacity scenario and further depression in commodity prices.
One favourable comment on India’s growth pattern relates to the fact that public investment in making available adequate infrastructure enhanced the market access by the private corporate sectors and thereby adding to crowd-in effect of public investment on private component.
Hopefully this pattern of public-private investment would characterise the current investment scenario and remove the single most important factor restraining growth and industrial activities in the country.
The projection by IMF is however a little conservative. It has factored in the changing policy mix under a new US government and the resultant global spillover.The global economy is slated to go down to 3.1% in 2016 from 3.2% in 2015 and is projected to pick up to 3.4% growth in 2017. The global growth is dependent on the economic activities in the emerging economies.
Interestingly, the projection has a caveat that if the policy stimulus in US and China happen at a higher scale and proportions than what was envisaged, there is a likelihood of a higher growth scenario in the current year. The report has highlighted the importance of enhancing the financial resilience to reduce the vulnerability occurring on account of tightening of global financial conditions, currency movements and risk of sudden capital flow.
The increasing trend of FDI in India is a good point in favour. Chinese economic growth of 6.9% in 2015 has come down to 6.7% in 2016 and further down to 6.5% in 2017. India’s GDP is projected to come down to 6.6% in 2016-17 from 7.6% in 2015-16 and moving up to 7.2% in 2017-18.
One factor that has been identified as critical in determining the prospects of the emerging economies concerns the uncertainty about global trade prospects and economic policies of the advanced countries. If more protectionism shapes the trade policies, it would adversely affect the fortunes of global economy with corresponding cascading impact on the emerging economies.
The author is DG, Institute of Steel Growth and Development. Views expressed are personal.