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A Menace: India’s ‘Growth’ to Slow to 7.3% In 2019

Trilok Singh
Trilok Singh, Founder and CEO.

Latest Moody’s report, stating that, Indian economy will expand at 7.4% in this year, but the growth will slow down to 7.3% in the 2019 as domestic demand tapers on higher borrowing costs due to rising interest rates, Moody’s Investors Service (MIS). The report, namely, ‘Global Macro Outlook 2019–20’, it mentioned the economy grew 7.9% in the first half (January-June) of 2018, which reflects post demonetisation base effect..

The report, on Nov 08, 2018, The largest downside risk to India’s growth future stem from concerns about its financial sector. While the impact of higher global oil prices compounded by sharp rupee depreciation raises the cost of households’ consumption basket, and will weigh on households’ capacity for other expenditures. Borrowing costs have already risen because of tightening monetary policy.

“This will weigh on the global trade growth and will reshape trade flows and supply chains,” Moody’s.

Notably, October, 2018, The International Monetary Fund (IMF) has acknowledged the ‘Economic reforms’ carried out under Prime Minister Modi and projected India to be the world’s fastest growing economy this year and next. While the World Economic Outlook (WEO) released ahead of the IMF annual meeting in Bali and mentioned, “In India, important reforms have been implemented in recent years, including the Goods and Services Tax, the inflation-targeting framework, the Insolvency and Bankruptcy Code, and steps to liberalize foreign investment and make it easier to do business.” Objective of demonetisation was to make India a less cash economy and thereby reduce the flow of black money in the system. The reduction in currency in circulation from the base scenario reflects that this intended objective has been met.

But citing external factors- “the recent increase in oil prices and the tightening of global financial conditions” — it cut India’s growth projection made in July for next year by 0.1% to 7.4%, which would still be the world’s fastest growth rate for major economies. It kept the 7.3% growth projection for this year made in July. Compared to the projections made in April, the current one for 2018 is lower by 0.1% and for 2019 by 0.4%. Up from India’s growth rate of 6.7% in 2016, the growth projections for this year and the next reflect “a rebound from transitory shocks” of demonetisation and the implementation of the national Goods and Services Tax- strengthening investment and robust private consumption,” As WEO mentioned.

Moody’s, also stating that borrowing costs have already increased on higher interest rates, the United State based agency has argued that, it expects the Reserve Bank of India (RBI) will continue to steadily raise the benchmark rate by 2019, which will further dampen domestic demand. These factors will limit the pace of the economy’s growth over the next few years, with real GDP growth of 7.3% in 2019 & 2020, from around 7.4% in 2018. “In the short term while measures to stabilise the financial sector are put in place, credit growth is likely to slow. Downside risks from a prolonged liquidity squeeze for non-bank financial institutions, which could lead to a sharper slowdown in their credit provision, remain.

Global economic growth will slow in 2019 and 2020 to a little under 2.9% from an estimated 3.3% in 2018 and 2017. It expects trade and geopolitical frictions between the U.S. and China to persist for some time”, Moody’s.

As IMF warned that ‘global growth’ may be significantly harmed with further escalation of trade tension, which is a result of the uneven global economic recovery that has fuelled inward-looking policies and contributed to increased policy uncertainty. A decade since the economic crisis, while there has been an undeniable progress towards a safer global financial system, clouds appear on the horizon, the IMF mentioned in its most recent fiscal stability report.

Meanwhile, Gita Gopinath, the Kerala government’s economic adviser. For India the IMF recommended “reform priorities include reviving bank credit and enhancing the efficiency of credit provision by accelerating the cleanup of bank and corporate balance sheets and improving the governance of public sector banks”. “A high interest burden and risks from rising yields also require continued focus on debt reduction to establish policy credibility and build buffers. These efforts should be supported by further reductions in subsidies and enhanced compliance with the GST.” While IMF Chief Economist Maurice Obstfeld warned that “there are clouds on the horizon” and “the likelihood of further negative shocks to our growth forecast has risen.” In several key economies, moreover, growth is being supported by policies that seem unsustainable over the long term.

Significantly, The Indian economy has the capacity to reinvent itself and the Government has done much to encourage it but much more needs to be done. While the rapid growth has been both “sustainable and inclusive” but it pose formidable challenges for existing economic framework in India. Also the process of development can be carried out by creating additional space for them who are yet to become the part of said process. For Bjp’s, Government took decisions and implemented the earlier provisions of law in a well-considered and planned manner over three years to meet the objective of fight against black money. These decisions span from setting up of SIT to passing of necessary laws for foreign assets to demonetisation and to implementation of GST.

The world’s fastest-expanding economy has also a great jobs problem and it is probably getting worse. According to a study released by PwC, India will need to add 10 crore people into the working age population by 2027, which is about five times the population of Australia (2.4 crore). India will need about 100 million jobs in the next 7 years, of these, around 80 per cent or 78 million jobs would be needed to be generated in just 10 states — Uttar Pradesh (UP), Madhya Pradesh, Chhattisgarh, Rajasthan, Jharkhand, Maharashtra, Odisha, West Bengal, Bihar and Assam. The real impact growth and developments could be even bigger. The RBI also reported a significant reversal in foreign portfolio investment (FPI) in the country. There was a net outflow of $8.1 billion during Q1 2018-19 compared to a net inflow of $12.5 billion during Q1 2017-18.

Amid debate on jobless growth, the study points to the challenges in the jobs sector in the country where a young and growing population will only continue to increase the workforce even as India grapples with a low labour participation and marginal employment. ET.

Consequently, Redistribution of resources and people has to be their in order to make our country more equitable that can be done only when there is a equal amount of shares between rural-urban-peri-urban Spaces. But the ‘Development Discourse’ in India has undergone huge change in the wake of “Name and Identity Politics”, demonetisation, GST, PSU bank recapitalisation, Air India Privatisation etc. It is no longer a exercise which can be carried out merely by the government of the day in terms of infrastructure and tangible notion but at the same time it is a conceptualisation of human freedom that enable him/her to attain the highest possible goals through democratic means. If the government can maintain a close to 7% overall growth with improvement in terms of trade for agriculture, it can expect strong political tailwinds in the 2019 National Election. Terms of trade between agricultural and non-agricultural sectors is an important political economy contradiction in India.

Written by Youth Darpan

An Leading Online News And Community Writing Platform. Founder and CEO, Mr. Trilok Singh.

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