India's growth rate is projected to accelerate to 7.2 per cent in 2018 and 7.4 per cent in 2019 on the back of strong private consumption, public investment and the ongoing structural reforms, a United Nations report said on Monday, 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," said the 'World Economic Situation and Prospects 2018' report unveiled by United Nations Department of Economic and Social Affairs (UN DESA) in New York.
"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," it said.
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.
According to the report, there exists some degree of uncertainty over the monetary policy in India.
"Subdued inflation, coupled with a good monsoon season, offers scope for additional monetary easing," it said.
Credit is subdued and there is low capacity utilisation in some industrial sectors while the banking and corporate sectors feel balance sheet problems.
"In this environment, vigorous public investment in infrastructure has been critical in propping up overall investment growth," the report 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.
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.
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.
"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.
Overall, economic outlook for South Asia is seen largely favourable and steady for the short term, notwithstanding significant medium-term challenges.
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 report.
"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 Sustainable Development Goals," said UN Secretary-General Antonio Guterres in the foreword of the report.