Three reasons why UN is upbeat on India’s GDP growth in 2018-19

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December 12, 2017 11:20 AM

A latest report by United Nations predicts 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. We take a look at three key reasons why UN is upbeat on India’s economy.

United Nations predicts that India’s economy is likely to expand by 7.2 per cent in 2018. (Image: Reuters)

A latest report by United Nations predicts 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, on the back of strong private consumption, public investment and the ongoing structural reforms. This will come as welcome news, especially after rating agency Fitch cut India’s GDP forecast for the current fiscal to 6.7%. Interestingly, many economists and global research firms alike have predicted India’s GDP growth on very similar lines. Global financial services conglomerate Goldman Sachs sees a bounce back in India’s GDP growth to 7.6% in the current financial year, and to 8% in FY19, a huge jump from a three-year low GDP growth a quarter ago. After upgrading India’s sovereign rating by a notch after a gap of almost 14 years, despite an economic slowdown in recent quarters and an expected rise in debt levels, Moody’s predicts a rebound in India’s growth to 7.5% in 2018-19. India also received positive news when the recent GDP growth numbers reversed a five-quarter slowdown and jumped to 6.3 per cent. The International Monetary Fund (IMF) said it will update its growth rate forecast for India in January next year. We take a look at three key reasons why UN is upbeat on India’s economy.

Strong private consumption

India’s 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.” “The outlook for India remains largely positive, underpinned by robust private consumption and public investment as well as ongoing structural reforms.”

Public investment

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 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.”

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.  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. “The good thing about next year is we don’t think we’re going to get those shocks again,” Andrew Tilton of Goldman Sachs said in an interview to Bloomberg. Moody’s noted, “Most of these measures will take time for their impact to be seen, and some, such as the GST and demonetization, have undermined growth over the near term.” On similar lines, Fitch expects GDP growth to pick up in the next two years. Gradual implementation of the structural reform agenda is expected to contribute to higher growth, as will higher real disposable income.

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