By Anshia Dutta
After a year of disruptions in the Indian economy following the cash purge and the Goods and Services Tax, the Voice of Asia report of Deloitte predicted on 13 March, Tuesday, a faster than expected growth rate for the Indian economy against a backdrop of several factors that could possibly derail growth.
The expected growth of the economy
According to the report, revival in rural demand and increased infrastructure spending are key economic drivers that are likely to drive the economys growth in the current year in spite of obstacles like rising debt and the recent trade protectionism. The report said, The improvement in domestic conditions is a positive sign that growth is picking up and will continue to maintain strong momentum in 2018, retaining India’s position as the ‘fastest-growing large economy’ in the world.
Following the cash purge and implementation of GST, the economys GDP growth was at its slowest pace in three years in the quarter ended June 2017. However, since June 2017, the economy showed signs of recovery with the growth rate accelerating for two quarters straight. In Oct-Dec 2017, the growth rate was a staggering 7.2 percent because of a rise in the government spending, 6.8 percent growth in non-farm and non-government sectors, and the escalation in private investment by 12 percent. The index of industrial production grew by 7.5 percent in January thus indicating that the recovery is continuing. The economy is expected to grow at a rate of 6.8 to 6.9 percent in the current fiscal year which is expected to be driven by private consumption in both rural and urban areas. The bank recapitalisation plan of ?2.11 lakh crores is likely to boost private investment and create employment opportunities.
Findings of the report
According to the report, the economy is showing signs of recovery as now there is optimism that the domestic demand of the country will increase due to increased consumption expenditure and revival of small-scale business activities. Moreover, consumer demand and growth which slowed down post the implementation of GST, are now getting better and the market conditions are reversing. Foreign direct inflows have also made a 49 percent cap in insurance, e-commerce, and health insurance. The increasing thrust on infrastructure development by the government: an infrastructure program worth ?7 trillion was announced in late 2017, is also playing its part in the economic growth of the country. In addition to this, the report mentioned that the government had made huge strides towards financial inclusion and has been pushing the expansion of digital India. The country is moving towards formalisation of the Indian economy. Anis Chakravarty, Deloitte India Partner and lead economist said, After a year of disruptions and growth slowdown, the Indian economy is consolidating the gains from the recent reforms and is moving in the right direction. With a steady increase in FDI inflows and pick-up in growth in the Q3 of 2017, 2018 will expectedly remain a period of strong growth for India with a growth rate of around 6.8 to 6.9 percent.
The report added that the global economy recovered in 2017 but India could not benefit much from it because of the demonetisation and GST shocks. The global growth is expected to continue this year too at a rate of 3.8 percent this year. It said, As the global economy is in its heights after recovering from the shocks of 2008 crisis, India should take the benefit of this opportunity. India’s ability to stave off the economic gales was helped by the fact that it is much less dependent than most countries on global flows of trade and capital. And therefore, the recovery in global economic conditions should help India boost its domestic growth.
Global liquidity
Talking about the challenges, the Voice of Asia report stated that there is a mounting debt from the post-2008 financial crisis period of excess global liquidity. Along with that, the spread of global protectionist sentiment is a matter of concern not only for India but for most of the Asian economies. Talking about the Indian economy, the countrys risks are going to be domestic in nature which could include market disruptions if the government is unable to resolve GST-related issues. Secondly, there is a possibility of higher growth leading to inflation in the economy. Other externalities like tax rate competitiveness and a potential trade war could also hinder the countrys growth. In addition to this, rising crude oil prices might end up adversely affecting the demand for goods using oil as inputs.