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  1. Three reasons why UN believes India can grow at 8% for next 20 years

Three reasons why UN believes India can grow at 8% for next 20 years

After a report by United Nations predicted that India’s economy is likely to expand by 7.2 per cent in 2018 and go up further to 7.4 per cent in the following year, a senior UN official said that India can grow at 8% for the next 20 years. We take a look at why UN is upbeat on India’s growth prospects.

By: | Updated: December 18, 2017 10:10 AM
Sebastian Vergara, an Economic Affairs Officer at the United Nations, says that India can growth at 8% for the next 20 years. (Image: Reuters)

After a report by United Nations predicted that India’s economy is likely to expand by 7.2 per cent in 2018 and go up further to 7.4 per cent in the following year, a senior UN official said that India can grow at 8% for the next 20 years. Last week, a UN report said, “The outlook for India remains largely positive, underpinned by robust private consumption and public investment as well as ongoing structural reforms.” Describing India’s economic condition as largely positive and “favourable to growth”, Sebastian Vergara, an Economic Affairs Officer at the United Nations, told PTI that the country needs to unleash the next set of reforms to achieve its potential. “It needs to think as to how to maintain and consolidate its growth for a very long period of time. India in our assessment has the potential to grow at eight per cent, not for a few years, but 20 years,” PTI reported Sebastian Vergara as saying. We take a look at why UN is upbeat on India’s growth prospects.

Structural Reforms

International rating agencies and economic experts in the country see a slew of positives flowing to the country from the structural reforms such as GST and demonetisation. Sebastian Vergara said that India will have to aggressively pursue its structural reforms agenda in order to maintain its growth consistently. All the three global rating agencies have lauded the Narendra Modi-led government for the ongoing reforms agenda.  “India needs to come out with the next series of reforms, for example, promote investment and improve the living condition of its population,” Sebastian Vergara said. “Moody’s believes that those (reforms) implemented to date will advance the government’s objective of improving the business climate, enhancing productivity, stimulating foreign and domestic investment, and ultimately fostering strong and sustainable growth,” Moody’s had said. Andrew Tilton, chief Asia-Pacific economist for Goldman Sachs Group Inc says that India’s economy could prove to be stronger than expected as the shock from structural reforms such as demonetisation and introduction of GST begins to fade. S&P believes that introduction of GST should spur up the economic activity in the country. “The removal of barriers to domestic trade tied to the imposition of GST should also support GDP growth,” S&P had said.

Public Investment

Economic Affairs Officer at the United Nations, Sebastian Vergara praised the Indian government’s emphasis on public investment and infrastructure projects. The government has already pumped in a lot of public investment in the ongoing financial year. After the Narendra Modi-led government announced a mega plan of Rs 2.11 lakh crore to recapitalise the stressed public sector banks last month, Moody’s, S&P and Fitch lauded the initiative will certainly the reform will help to spur up lending activity of the banks. All the three credit rating agencies have also taken note of the government’s infrastructure boost through the Bharatmala project to develop and expand approximately 40,000 km of roads at an investment of Rs 6.9 lakh crore by 2022. S&P noted in its report, “Public-sector-led infrastructure investment, notably in the road sector, will also stimulate economic activity, while private consumption will remain robust.” United nations said in its report, “In this environment, vigorous public investment in infrastructure has been critical in propping up overall investment growth.”

Strong Private Consumption

India has seen a steady rise in demand, and private consumption accounted for 57.3 % of its Nominal GDP in Sep 2017.  In an interview to CNBC TV18, Chetan Ahya, Co-Head of Global Economics & Chief Asia Economist, Morgan Stanley said recently, “The private capex joining in will bring the strength in India growth numbers that we are forecasting for it to go to 7.5 percent in March FY19.” Sebastian Vergara noted that this is one of the important factors for India’s positive economic condition. “One of this is the growth of private consumption and sound macroeconomic policies. The monetary policy, which has been able to control inflation, also has a role to play. Also fiscal policy in India, in our assessment has been prudent. At the same time, it has provided another quite support for the economic activity, PTI reported Sebastian Vergara as saying.

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