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RSTV: THE BIG PICTURE- INDIAN ECONOMY GOING STRONG


RSTV: THE BIG PICTURE- INDIAN ECONOMY GOING STRONG


Introduction:

Indian economy in the times when major economies around the world are seeing slow growth rate, the International Monetary Fund (IMF) pegged India’s economic growth forecasts for India to 7.3 per cent for FY 2020 and 7.5 per cent for the next fiscal. The IMF report also cited continued recovery of investment and robust consumption amid a more expansionary stance of monetary policy and some expected impetus from fiscal policy.

It, however, said that in the near term, continued fiscal consolidation is needed to bring down India’s elevated public debt. This should be supported by strengthening goods and services tax compliance and further reducing subsidies.

The IMF also commended the government for taking steps to strengthen financial sector balance sheets through accelerated resolution of non-performing assets (NPAs) under a simplified bankruptcy framework.

The report though argued that global growth which peaked at close to 4 per cent in 2017, dropped to 3.6 per cent in 2018 and is projected to fall further to 3.3 per cent in 2019.

 

The International Monetary Fund (IMF) cut India’s GDP growth forecast for 2019-20, following similar action by the Asian Development Bank (ADB) and the Reserve Bank of India (RBI).

In India, growth is projected to pick up to 7.3% in 2019 (2019-20) and 7.5% in 2020, supported by the continued recovery of investment and robust consumption amid a more expansionary stance of monetary policy and some expected impetus from fiscal policy.

IMF’s downward revisions in India’s growth forecasts are 20 basis points each in 2019-20 and 2020-21 from its outlook released in January.

One basis point is one-hundredth of a percentage point.

Both ADB and RBI cut their 2019-20 growth projection for India to 7.2% from 7.4% earlier, blaming rising risks to global economic growth as well as weakening domestic investment activity.

The Indian economy grew 6.6% in the December quarter, the slowest in five quarters. That prompted the Central Statistics Office (CSO) to trim its 2018-19 forecast to 7% in February from 7.2% estimated.

With the Indian economy projected to slow down further in the fiscal fourth quarter, the central bank’s focus has shifted from inflationary concerns to sustaining the growth momentum. RBI effected two back-to-back rate cuts of 25 basis points each to boost growth.

Of the high-frequency indicators of industry, growth in the manufacturing component of the index of industrial production slowed to 1.3% in January. Growth of eight core industries remained sluggish at 2.1% in February. Data released by the Society of Indian Automobile Manufacturers on Monday signalled a slowdown in urban demand as car sales grew 2.7% in 2018-19, the worst performance in five financial years.

 

Agenda for the government:

Setting the agenda for the government, IMF said continued implementation of structural and financial sector reforms with efforts to reduce public debt remain essential to secure the Indian economy’s growth prospects.

“In the near term, continued fiscal consolidation is needed to bring down India’s elevated public debt. This should be supported by strengthening goods and services tax compliance and further reducing subsidies,” IMF said in its World Economic Outlook.

The report emphasized enhancing governance of public sector banks and reforms to hiring and dismissal regulations that would incentivize job creation and absorb the country’s large demographic dividend. “Efforts should also be enhanced on land reform to facilitate and expedite infrastructure development,” the report stated.

IMF commended the government for taking steps to strengthen financial sector balance sheets through accelerated resolution of non-performing assets (NPAs) under a simplified bankruptcy framework.

Global Risks:

IMF also cut its global growth forecast for 2019 by 20 basis points to 3.3%—the lowest since the financial crisis in 2008—blaming trade tensions between the US and China, loss of momentum in Europe and uncertainty surrounding Brexit. It, however, raised China’s GDP growth outlook by 10 basis points to 6.3% for 2019.

Beyond 2020, the report said global growth would be sustained at about 3.6% because of the increase in the relative size of economies such as China and India, which are projected to have robust growth.

 Growth in India is expected to stabilize at just under 7.75% over the medium term, based on continued implementation of structural reforms and easing of infrastructure bottlenecks.

IMF chief economist Gita Gopinath said global growth should rebound if the downside risks do not materialize and the policy support that is put in place is effective.

“If, however, any of the major risks materialize, then the expected recoveries in stressed economies, export-dependent economies and highly indebted economies may be derailed. In that case, policymakers will need to adjust. Depending on circumstances, this may require synchronized, though country-specific fiscal stimulus across economies, complemented by accommodative monetary policy,” she added.

 

$3-Trillion Economy
According to IMF’s October 2018 data, FY20 GDP is seen at $2.958 trillion, adjusting for revisions it should be slightly short. However, India’s own assessment presented in the budget sees GDP at Rs 210 trillion, which translates to slightly more than $3 trillion

 

India Tops Remittances List
India received $79 million in remittances from its diaspora in 2018 possibly due to financial help following the Kerala floods, the World Bank said Monday. India was followed by China at $67 billion, Mexico $36 billion and the Philippines $34 billion. “Remittances grew by more than 14% in India, where a flooding disaster in Kerala likely boosted the financial help that migrants sent to families,” the bank said. India’s remittances had increased from $62.7 billion in 2016 to $65.3 billion 2017.

 

Contributing factors in the growth of the economy:

  • Report actually says that the economy is doing extremely well and it is one of the fastest going economy.
  • Largest contributor to the growth is United states which is growing at 4%.
  • The economy Europe has seen slowdown.
  • So far we are driven by consumption.
  • Others factors are discussed above.

 

Challenges:

  • We need to work on creating jobs.
  • Farmers distress- Prices in the farm output has been extremely low.
  • Farm loan waiver is not the solution because it further stresses the banks which are under serious NPA problem.
  • Services sector has been growing much in the informal sector than the formal sector.
  • Since report highlight global slowdown we need to boost the investment which may fall too.

 

Way Forward:

  • Need of land reforms.
  • Need of labour reforms.
  • Need of Judicial reforms.
  • Need of market reforms in the agricultural sector.
  • Rural wages and credit needs to be improved for improving the consumption in rural sectors.
  • Bring investment into the economy and increase the consumption.
  • We need to concentrate more on the growth of domestic economy.
  • Give opportunities for private sector to pick speed.
  • Speed up the resolution of NPAs and a simplified bankruptcy framework.
  • Enhancing governance of public sector banks.

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