India’s growth rate is projected to accelerate to 7.2 per cent in 2018 and 7.4 per cent in 2019, the UN said, describing the outlook for the country as “largely positive“.

Despite the slowdown observed in early 2017 and the lingering effects from the demonetisation policy, the outlook for India remains largely positive, underpinned by robust private consumption and public investment as well as ongoing structural reforms,” the United Nations said.

In its report ‘World Economic Situation Prospects’, released at the UN headquarters in New York, the UN said “GDP growth for India is projected to accelerate from 6.7 per cent in 2017 to 7.2 per cent in 2018 and 7.4 per cent in 2019“.

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At the same time, the report said, the performance of private investment remains a key macroeconomic concern.

“Gross fixed capital formation as a share of GDP has declined from about 40 per cent in 2010 to less than 30 per cent in 2017, amid subdued credit growth, low capacity utilisation in some industrial sectors and balance sheet problems in the banking and corporate sectors. In this environment, vigorous public investment in infrastructure has been critical in propping up overall investment growth,” it said.

Credit growth is subdued despite monetary easing, but bank recapitalisation and the Indian Bankruptcy Code (IBC) have the potential to revive credit growth, said N R Bhanumurthy, Professor, National Institute of Public Finance and Policy.

Monetary policy

According to the report, there exists some degree of uncertainty over the monetary policy stance in India. “Subdued inflation, coupled with a good monsoon season, offers scope for additional monetary easing,” it said.

Fiscal deficit in India has declined visibly, and it is expected to narrow further to 3.2 per cent of GDP in 2018, it added.

An upturn in the global economy—now growing by about 3 per cent—paves the way to reorient policy towards longer-term issues such as addressing climate change, tackling existing inequalities and removing institutional obstacles to development, according to the United Nations World Economic Situation and Prospects (WESP) 2018.

“The World Economic Situation and Prospects 2018 demonstrates that current macroeconomic conditions offer policy-makers greater scope to address some of the deep-rooted issues that continue to hamper progress towards the Sustainable Development Goals,” said UN Secretary-General Antonio Guterres in the foreword of the report.

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Tasks ahead

Strengthening its fiscal accounts, especially through widening of the tax base, and addressing infrastructure deficit are two major concerns for the Indian government, he added. Achieving the Fiscal Responsibility and Budget Management (FRBM) target could become a major challenge in the context of Goods and Services Tax (GST) as well as recent stimulus measures, he added. “Achieving 3.2 per cent fiscal deficit may not be an issue, but quality of expenditure is more important than fiscal deficit target,” Bhanumurthy told reporters while presenting the report here.

Outlook for South Asia

Overall, economic outlook for South Asia is seen largely favourable and steady for the short term, notwithstanding significant medium-term challenges, said the ’World Economic Situation and Prospects 2018’ report unveiled by United Nations Department of Economic and Social Affairs (UN DESA). “The economic outlook remains steady and largely favourable in South Asia, driven by robust private consumption and sound macroeconomic policies.

“Monetary policy stances are moderately accommodative while fiscal policies in several economies maintain a strong emphasis on infrastructure investment. The recovery of external demand is also buttressing growth,” said the report unveiled today.

For South Asia, the UN report expects regional gross domestic product (GDP) growth to be strengthening to 6.5 per cent in 2018 and further to 7 per cent in 2019, following an estimated economic expansion of 6.3 per cent this calender.

The positive economic outlook is widespread across the region, with most of the economies projected to see stronger growth rates in 2018 compared to 2017, it added.

Inflation in the region is seen to be stable and at relatively low levels, stated the report.

“The favourable prospects for inflation, coupled with mostly sustainable current account deficits, will facilitate macroeconomic policy management across the region in the near term,” the report added.

Overall, this positive outlook is a continuation of the improvement in economic conditions in South Asia over past years and will contribute to gradual progress in labour market indicators and a reduction in poverty rates, it said further.

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