The International Monetary Fund’s (IMF) FY18 gross domestic product (GDP) growth projection for India at 6.7 per cent though shows that the growth rate this year will be slower than that in the previous year, the domestic numbers throw up a notable contrast to growth trend witnessed in advanced economies and other major emerging countries.
Data collated from the IMF shows that India is one of the few countries that is set to witness a slower rate of growth in FY18 over the previous year. While the economy expanded at 7.1 per cent in FY17, it is projected to grow at 6.7 per cent this year. The Reserve Bank of India (RBI), too, has projected the Indian economy to grow at 6.7 per cent in 2017-18.
In contrast, China has been projected to grow at 6.8 per cent in calendar 2017, slightly higher than 6.7 per cent growth registered in the previous year. Even developed economies such as the US and Japan are expected to grow 50 basis points higher than the growth witnessed last year. While the IMF has projected the US to grow at 2.2 per cent in calendar 2017 (1.7 per cent previous year), it projected Japan to grow at 1.5 per cent (1 per cent previous year).
Russia and Brazil, that announced GDP contraction in calendar year 2016 at -0.2 per cent and -3.6 per cent, respectively, have been projected to expand at 1.8 per cent and 0.7 per cent, respectively, in calendar year 2017. While the emerging and developing Asia as a group is set to witness a 0.1 percentage point higher growth in calendar 2017 at 6.5 per cent over that seen in the previous year, the emerging and developing Europe as a group is set to grow at 4.5 per cent as against the growth rate of 3.1 per cent in the previous year. The world is expected to grow at 3.6 per cent in calendar 2017 over 3.2 per cent in calendar 2016.
Only countries such as Spain , Ireland, the UK and Australia among a few others (low growth smaller economies) are set to witness a lower growth rate in calendar year 2017 over that in calendar 2016. The IMF report, however, points to a revival of growth in India over the next five years and has projected GDP to grow at 8.2 per cent in FY23.
Experts say that while the world economy is enjoying one of the best year of growth (this year) over the past few years, and they are witnessing a pick-up in GDP and jobs growth, India is one of the few to be witnessing a slowdown in GDP growth and rising unemployment.
Some experts point on recent policy moves such as demonetisation and the goods and services tax (GST) implementation as the reasons for slowdown of growth in India this year. There is a broad sense in the market that the back-to-back implementation of the two policies has disrupted both the domestic and export business.
India’s GDP growth has fallen to 5.7 per cent in April-June 2017, from 7.9 per cent in April-June 2016, after falling consistently during each quarter in the intervening period. Acknowledging the slowdown in the economy, the Economic Advisory Council to the Prime Minister
(EAC-PM) in its first meeting on October 11 stressed the need to “accelerate economic growth and employment over the next six months”.
“There is a consensus among us about the various reasons that have caused the slowdown” and the Council will provide specific recommendations that can be implemented in near term, its Chairman Bibek Debroy said. There is a lot of concern about the economy today and the Council will “work as a sounding board of ideas”, EAC member Ashima Goyal said.
Another factor that is playing out is the fact that while exports in many economies including the emerging economies are growing on account of global economic recovery, India has not gained much on that front as it got impacted by developments such as demonetisation and implementation of the goods and services tax. Experts say that these two impacted businesses across the country and will continue to have a near term impact on business and has hurt exports, too.
Even the RBI in its monetary policy statement on October 4, 2017, noted that the global economic activity has strengthened further and become broad-based. It noted that the US has continued to expand with revised Q2 GDP growing at its strongest pace in more than two years; the Euro area has gained traction and spread underpinned by domestic demand and the Japanese economy continued on a path of healthy expansion. It noted that while China showed robust domestic demand, the Brazilian economy expanded for two consecutive quarters in Q2 on improving terms of trade. Russia too saw recovery on the back of strengthening global demand, firming up of oil prices and accommodative monetary policy.
On India, it raised concerns and said that the loss of momentum in Q1 of 2017-18 and the first advance estimates of kharif foodgrains production are early setbacks that impart a downside to the outlook. “The implementation of the GST so far also appears to have had an adverse impact, rendering prospects for the manufacturing sector uncertain in the short term. This may further delay the revival of investment activity, which is already hampered by stressed balance sheets of banks and corporates,” the RBI said in its statement.