A cautious fiscal policy and lower inflation coupled with reforms in some areas are putting India on its trajectory to hit a 7.8% growth rate, according to a UN economics specialist.
The UN Economic and Social Commission for Asia and the Pacific (ESCAP) 2016 survey released on Thursday estimates that the Indian economy grew by 7.6% in 2015 and is projected to grow at the same rate this year and reach 7.8% next year, the highest in the region and overall in the world for a large economy. In 2014, the growth rate was 7.3%.
On the inflation front, ESCAP estimates last year’s rate fell to 5% from 6.7% in 2014, but is expected to rise to 5.2% this year and 5.6% next year.
“The macro economic policy has been cautious, especially in the fiscal side but this has been a positive development in order to provide a good framework to increase the sentiment of the consumer,” said Sebastian Vergara, the Economic Affairs Officer at the UN’s Department of Economic and Social Affairs (DESA).
Asked at a media briefing here after the report’s release about India’s performance, he added, “At the same time the monetary policy has played an important role in reducing inflation reducing which is also playing a positive role for the Indian economy.”
While the reforms will continue to contribute to high growth, he added a note of caution. “With respect to the structural reforms, I would say the picture is mixed,” he said. “In some areas the Indian government has made important effort and I think that effort is beginning to pay off leading to increase in investment, but there are some areas where the pace of reforms are making slow progress.”
The ESCAP report stressed the importance of private consumption as the main driver of the growth story in India in contrast to some of the countries in the region. This is “reflected in robust services activities relating to trade, finance, transport and communications, and real estate,” it said.
However, “rural demand was weaker due to the muted agricultural activity and slower rural wage growth due to subpar monsoon seasons,” the survey noted.
With India’s growth relying heavily on internal demand, the report said that “progress made in implementing structural reform and how rapidly large-scale stalled infrastructure projects are unlocked” will determine its course.
The report expected steady employment growth in the near term. It referred to the progress in reforming fiscal policy like the rationalisation of fuel prices, but noted that the implementation of the goods and services tax “remains an important reform that is being held up due to political deadlock.”
Referring to the “Make in India” programme launched by Prime Minister Narendra Modi, the survey said it “affirms that India is open for business” and also and noted India’s better ranking in the World Bank’s ease of doing business index where its position rose by four places to 130 this year.
Looking at entire Asia Pacific region, the report said that economic situation is broadly stable, but the outlook is cloudy, the report said. The slowdown in China and its uncertain outlook are among the reasons it cited for the cautious prognosis. Others include the gradual rise in the US interest rates and the currency volatility and the capital outflows.
To reboot regional growth, ESCAP said broad-based productivity gains and rebalancing the economies towards domestic and regional demand was necessary, rather than relying on exports.
Improving productivity in the rural sector is important in battling poverty in the region, the survey said, because more than half the population – about 2.1bn people – live in rural areas.
“Industrialising agriculture and raising agricultural productive must be at the centre of this effort in view of the great mass of the remaining poor and the food insecure people who live on agriculture and inhabit rural areas,” it said.
The problem of a large and unsustainable “surplus labour” in agriculture can only be solved through policies that enable the movement of labour and capital across agriculture, service and manufacturing sectors, ESCAP said emphasising the importance of rural industrialisation in meeting the goals of poverty alleviation.
Meanwhile, Indian President Pranab Mukherjee said that the Indian economy has the potential to grow at 8-10% per year over the next couple of decades.
“India today stands poised for another leap forward that is predicted to be around India’s GDP growth of 7.6% in 2016-17 and going to have higher growth rate in the coming years,” Mukherjee said.
The President was addressing the Papua New Guinea Business Council on the second and concluding day of his official visit to this Pacific island-nation.
“In fact, the Indian economy has the potential to achieve 8-10% GDP growth per year over the next couple of decades,” the Presiden, himself a former finance minister of India, said.
Mukherjee said that the world today saw the Indian economy as a bright spot in an otherwise gloom and bleak economic environment all over the world. “In fact, since the financial crisis in 2008, world economy had never fully recovered,” he said.
“One after another the crisis came but despite the unfavourable environment in the international world of money, finance, trade and commerce, India continued to achieve higher GDP growth rate except a couple of years as the aftermath of this adverse impact in international scenario.”
On Papua New Guinea’s economic growth, he said it did not truly reflect the potential of a country blessed with abundant natural and mineral resources, highly fertile soil, plenty of fresh water and an extensive coastline teeming with fish and a splendid variety of precious seafood.
“The exclusive economic zone of Papua New Guinea, 3.1mn sq. km, is the guarantee of future growth of this region and would provide the opportunity to Papua New Guinea to lead the Pacific Ocean,” the President said.
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