India’s GDP growth to sink to China’s level in 2017

UN report pegs India’s GDP to grow 6.7% in 2017, down from 7% in 2016

After racing past China for two years, India’s Gross Domestic Product (GDP) growth in 2017 is expected to return to the same level as its northern neighbour at 6.7 per cent, according to a United Nations body.

A report published on Thursday by the UN Conference on Trade and Development (Unctad) forecasts 6.7 per cent growth in 2017, a four-year low, down from seven per cent last year.

The agency calculates GDP growth at constant 2005 prices, in dollars. By its calculations, we had lower growth of 6.3 per cent in 2013. China’s GDP growth rate had fallen consistently for six years till 2016, from when it is expected to stabilise.

While Unctad calculates growth based on calendar year, India officially follows an April-March financial year.

On that note, government figures show that in the first quarter (April-June) of FY18, the growth in GDP fell to 5.7 per cent, the lowest since the Narendra Modi government came to power in 2014. Experts say this was largely a fallout of the scrapping of the ~500 and ~1,000 notes in November 2016, which had led to massive fall in demand.

Overall growth of the world economy is estimated at 2.6 per cent in 2017, marginally more than the 2.2 per cent in 2016 and the same level in 2015. This is because of persistently low growth in Japan, the United States, and core Euro zone economies, apart from slowing in Britain, Unctad believes.

On South and Southeast Asia, the report says the export-led growth strategy of nations in the region are coming under severe strain, with continuing weakness in external demand, volatile capital flows and tightening of global financial conditions.

These economies, including India, are unlikely to see a return to the growth rates before the global crisis (late 2008) any time soon. Exports have continued to remain low for cyclical and structural reasons, the report said.

Merchandise export growth slowed to 3.94 per cent in July, even as India witnessed 11 straight months of rise in outbound trade.

The rate of growth has continuously declined since March, when it hit a high of 27 per cent, the steepest in a little over five years.

The gradual slowing in China is expected to continue as it moves ahead with rebalancing its economy growth based on calendar year, India officially follows an AprilMarch financial year On that note, govt figures show that in the first quarter of FY18, the growth in GDP fell to 5.7 per cent, the lowest since the Narendra Modi govt came to power towards domestic markets. However, the explosion of domestic debt there since the 2008 crisis has proved a major challenge to sustained growth.

Grappling with a similar issue, India’s struggle in dealing with an exploding rise in stressed and nonperforming assets entrenched in the banking system has been flagged by the report.

“Data for all banks (public and private), relating to December 2016, point to a 59.3 per cent increase over the previous 12 months, taking it to 9.3 per cent of their advances, compared with a non-performing assets (NPAs) to advances ratio of 3.5 per cent at the end of 2012,” the report mentioned.

Unctad has suggested a significant and coordinated break with fiscal caution and austerity in major economies is required to break out of the low growth cycle.