In a world economy still ensnared in a low-growth trap, India is well-placed to maintain its high growth rate despite the drought and the external pressures, according to UN analysts.
The UN’s mid-2016 report on the World Economic Situation and Prospects paints a “bleak picture” of the global economy projecting a growth rate of 2.4 percent this year and 2.8 percent next year with little prospect for a turn around, Lenni Montie, the Assistant Secretary-General for Economic Development, told reporters Thursday after its release.
In contrast, the report expected India to grow by 7.3 percent this year and 7.5 percent next year, the strongest gross domestic product (GDP) growth rate for a large economy.
This would be despite the drought that is affecting 330 million people in 10 states and the headwinds blowing in from the rest of the world, according to experts here.
Senior Economic Affairs Officer Dawn Holland told IANS in an interview that although the drought will have a “very damaging impact on agriculture”, its effect on the overall economic growth will be limited because the agriculture sector is not the part of the economy that has been growing rapidly. “So looking at the macro figures (of growth), you may not see the impact as clearly as you will at a more disaggregated level,” she said.
“What we will have to be concerned about is the impact it may have on the more vulnerable members of society, who are sensitive to agricultural production, sensitive to food prices,” Holland said. “So it could set back some effort in terms of tackling poverty reduction.”
“India is one of the bright spots in the world economy,” Sebastian Vergara, an Economics Affairs Officer who monitors India, told IANS.
“The management of the macro economic policy has improved in recent years and it is clearly benefiting consumption and the sentiments of business and consumers.”
Asked about possible risks to India’s near-term growth, he said that the “main risk” could come from domestic factors that may slow the pace of economic reforms.
Externally, he said that global liquidity is tightening and the United States Federal Reserve is starting to raise the interest rate. “So what is happening at the global level can at some point affect the Indian economy by increasing the volatility of the exchange rate, by reducing the capital inflows in the Indian economy.”
As against these, “the Indian economy from a macroeconomic policy perspective, both the fiscal and the monetary sides are in a good place now”, Vergara said.
“Inflation as been contained and India has gained monetary space to reduce interest rates and also on the fiscal side India’s proposed fiscal budget a couple of months ago was well balanced with a good focus on the rural economy and also with an effort to increase public investment.”
Increased public investment will encourage private investment, he said. “If the private investment increases in the near term, the economic prospect of India could strengthen even further.”
The UN Economic and Social Commission for Asia and the Pacific (ESCAP) in the economic and social survey of the region for 2016 released last month had projected slightly higher growth rates of 7.6 percent this year and 7.8 percent next year.
Vergara said he did not attach importance to the small difference. “What could be a little different is the timing.” he said. “The ESCAP report put a higher number for the GDP growth so in their assessment they expect the economic growth will pick up sooner. Our assessment is similar.
“Both reports go in the same direction, go in the same line in terms of the positive growth of the economy,” he said.