India to clock 7.1% GDP in 2017, 7.5% in 2018: UN report – 3 May 2017

  • The UN Economic and Social Commission for Asia and the Pacific (ESCAP) said in its annual flagship report ‘The Economic and Social Survey of Asia and the Pacific 2017’ that the economic growth for India is projected to be stable at 7.1% in 2017 before edging up to 7.5% in 2018, underpinned by higher private and public consumption and increased infrastructure spending.
  • Growth in India is forecast at 7.1% in 2017 as “re-monetisation restores consumption, and infrastructure spending increases”, the report said. Inflation is projected to reach 5.3-5.5% in 2017 and 2018, which is somewhat above the official target of 4.5-5%.
  • The report, however, noted that a key downside risk for India was heightened financial sector risks related to the concentration of bad loans in public sector banks. The gross non-performing assets ratio in public sector banks reached almost 12% in 2016, which points to the need for “bank recapitalisation”, it said.
  • Noting the impact of demonetisation, the report said the unexpected withdrawal of the two largest denomination currency notes in Nov 16 and their subsequent replacement with new currency weighed down economic conditions in late 2016 and early 2017. The resulting liquidity crunch led to delays in the payment of wages and purchase of inputs in the industrial sector, the report said.
  • The recent budget called for various measures that seek to mitigate the large temporary adverse shocks on income and wealth, such as expanding a low-cost housing scheme and providing more relief to the agricultural sector and credit support for small enterprises.
  • Notwithstanding its short-term disruptions, the report said one of the medium-term benefits of demonetisation was to help expand banking sector liquidity.
  • Despite the overall fiscal tightening, capital expenditure under the budget for fiscal year 2017/18 is about 25% higher than that in the preceding budget.

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