Economic Highlights
New Delhi, 22 May 2017
ESCAP Projection
INDIA AMONG WORLD HOTSPOTS
By Shivaji Sarkar
There is good news for India. It remains among the world
hotspots and the growth in 2018 is to touch 7.5 per cent, says the United
Nations Economic and Social Survey of Asia and the Pacific (ESCAP) report 2017.
This year, the growth is projected to be at 7.1 per cent as
the country faces heightened risks related to the
concentration of bad loans in the public sector banks that has reached 12 per cent
in 2016. Overall the growth is to be underpinned
by higher private and public consumption and increased infrastructure spending.
The
ESCAP finds the threat of protectionism growing amid rising global uncertainty.
The Survey estimates that a steeper than anticipated increase in these factors
could reduce average regional – Asia and Pacific - growth in 2017 up to 1.2 per
cent. India
even in such scenario is projected to have better economic gains.
The
report has a good word for the India’s
Union budget and sees 25 per cent higher capital expenditure than the previous
year. However, it has expressed concern--inflation that is projected to reach
5.3 per cent in 2017 and 5.5 per cent in 2018 against the official target of
4.5 to 5 per cent.
It is
the most positive international system report. Only a day before the release of
this report, the International Monetary Fund (IMF) had pegged India’s growth for the
current fiscal year at 6.6 per cent from its previous estimate of 7.6 per cent
due to the “temporary negative consumption shock” of demonetisation. The World Bank too decelerated India’s GDP growth for 2016-17
fiscal to 7 per cent from its previous estimate of 7.6 per cent.
However,
Economic Affairs officer of South and South-West Asia of ESCAP Matthew Hammill,
despite difficulties for lower-income individuals and households and businesses
in the short run, says the note-ban has positive impact due to Prime Minister Narendra
Modi’s policy initiatives announced on December 31. One of the most affirmative
gains says NR Bhanumurthy, Professor, National Institute of Public Finance and
Policy is the windfall revenue gains of 3.16 per cent in the wake of demonetisation.
He also
notes that at least three per cent of the previous currency has not come back
and that is another gain for the Government. The reserve money, the new
circulated currency notes, value Rs 9 lakh crore against the previous estimates
of over Rs 14 lakh crore. Further, he says that India’s district governance is now
better and these are becoming the pivot for growth.
Notwithstanding
its short-term disruptions, the report says one of the medium-term benefits of
demonetisation was to help expand banking sector liquidity. “The country’s
medium-term economic development will also benefit from recent reforms that are
aimed at easing domestic supply bottlenecks, such as the implementation of the
goods and services tax, amendment of a bankruptcy law and opening up of the
pharmaceuticals, defence and civil aviation sectors,” it said.
The
interest rates also do not matter much for private investment. So should rates
on savings and lending be lowered? It is a virtual direct subsidy to the
high-profit making industry and should be relooked.
The
report is pessimistic on China as growth softens to 6.5 per cent in 2017 and 6.4 per cent in
2018. Inflation is to rise and the outlook is subject to downside risks.
Monetary policy tightening by US President Donald Trump could result in
financial volatility and capital outflows. High domestic indebtedness could act
as a drag on growth. The liabilities of State owned enterprises are estimated
to about 115 per cent of GDP, which could undermine Chinese fiscal stability.
The social inequality will rise.
This
is a risk to India also as China resorts
to aggressive regional and international postures, say experts. The recent
One-Belt-One-Road (OBOR) and China-Pakistan Economic Corridor (CPEC) initiative
are seen as moves to increase its protectionist hegemony in South-East
Asia and the Indian sub-continent. In the entire southern Asia, growth is there. The challenge, however, remains in
the creation of decent and high productive jobs. The policy priority should be
to create jobs in sectors where people live in poverty.
“Moreover
as the sub-region is experiencing a youth bulge, in which the share of the
working-age population is projected to rise at least till 2030, the need for sufficient
number of decent jobs becomes urgent”. Vast majority of jobs in India, even in
services are concentrated in low-productivity areas like retail services.
The
share of more productive and higher skill required jobs in the Indian
sub-continent, called sub-region, like managerial, professional and technical
work remains below 20 per cent. India’s
manufacturing at 17 per cent “is notably lower than China,
South Korea and Thailand, where
such shares are close to one-third”.
Informal
employment, the report notes with concern, accounts for almost 90 per cent in India, Bangladesh
and Pakistan, 95 per cent in
Nepal and 70 per cent in Sri Lanka. “The
pervasiveness of informal sector jobs has perpetuated low productivity, poverty
and inequality. They receive lower wages and have limited resource to social
security and other benefits”.
“Evidence
suggests”, the report says, “that the bulk of the jobs created in the formal
sector of Indian manufacturing are low-quality insecure jobs”. It calls for
extending comprehensive social security benefits, as in many cases the Indian
government is doing-- old age pensions, maternal health care benefits to informal
sector.
The ‘Make in India’, ‘Stand Up India’ and ‘Skill India’ policy
packages envision India as a manufacturing hub of automotives, textiles,
pharmaceuticals, as well as the energy and infrastructure like oil and gas,
power, ports and telecommunications, says the survey. These might energise the
manufacturing sector. It also notes higher investment in human resource
development to increase skilled labour force. The World Bank studies show that
countries with higher average years of schooling tend to have a higher share of
employment in manufacturing and services and higher share of wage employment.
Overall
it said, the still rapid output growth in 2016 benefited from a modest recovery
in agriculture due to an improved monsoon season and robust growth in public
administration following public sector salary increases. The appreciation of the
rupee may not have negative impact on exports. India,
observes Bhanumurthy, unlike China
does not manipulate the currency rates. The Rupee should now be made an international
currency.
In the
economic perspective, rising rupee and falling oil prices could have a favourable
balance of trade, reduce transaction costs and if managed properly could add to
further growth of the economy. ---INFA
(Copyright, India News and Feature Alliance)
|