The Gulf Today - Business - - SPECIAL REPORT -

NEW DELHI: Even the most op­ti­mistic es­ti­mates can­not deny that in all like­li­hood, the world econ­omy will grow at a slower pace in 2019 than it did in the pre­vi­ous year.

Most sig­nif­i­cantly, the Chi­nese econ­omy that had man­aged to keep its en­gine run­ning at full throt­tle over the last four decades is slowly run­ning out of gas.

The fact that tech gi­ant Ap­ple had to cut its sales fore­cast cit­ing an un­fore­seen “mag­ni­tude of eco­nomic de­cel­er­a­tion” in China is telling of the eco­nomic heft the Asian econ­omy car­ries in the world to­day.

Even though this slow­down of the Chi­nese econ­omy was ex­pected, the trade war with the US has only has­tened the in­evitable. Apart from the trade war, the con­tin­u­a­tion of mon­e­tary tight­en­ing by the world’s largest economies will only add to the mis­ery.

Amidst such bleak global prospects, the In­dian econ­omy has been reel­ing un­der its own share of prob­lems.

The econ­omy was surg­ing at 8.2 per cent in the quar­ter ended June 2018 - the fastest rate for any ma­jor econ­omy in the world.

Even though In­dia still car­ries that dis­tinc­tion, the growth rate slowed down to­wards the end of the year to 7.1 per cent.

Gov­ern­ment data re­leased on Mon­day put at growth rate at 7.2 per cent in 2018-19. In­vest­ments have also taken a hit.

As per data from the Cen­tre for Mon­i­tor­ing In­dian Econ­omy (CMIE), in­vest­ments into new projects in the last three months of 2018 was at its low­est level since the BJP came into power in 2014.

The value of stalled projects has also risen to the sec­ond high­est in the ten­ure of the cur­rent gov­ern­ment.


The lat­est down­turn is a cul­mi­na­tion of the ad­verse global con­di­tions that have played out over the last few months.

A sud­den spike in crude oil prices had sent the In­dian cur­rency in a freefall, widen­ing the cur­rent ac­count deficit and damp­en­ing growth. Only a re­ver­sal in oil price trends proved to be a sav­ing grace for the In­dian econ­omy.

The series of events were a rude re­minder of the de­pen­dence of the health of the In­dian econ­omy on the price of oil.

A higher price of oil was a lead­ing cause of the dis­mal eco­nomic sce­nario in the fi­nal years of UPAII and its sus­tained down­ward re­vi­sion ex­plained the econ­omy’s im­proved per­for­mance dur­ing a ma­jor­ity of the cur­rent gov­ern­ment’s ten­ure. As per IMF es­ti­mates, the wind­fall gains to the In­dian econ­omy from a fall in crude oil prices were a cu­mu­la­tive 4 per cent of GDP in 2015 and 2016.

There­fore, oil price trends will also have a strong bear­ing on In­dia’s eco­nomic per­for­mance in 2019. The price will prob­a­bly re­main sub­dued ow­ing to the slow­down in the global econ­omy, but the oil car­tel, Or­gan­i­sa­tion of the Pe­tro­leum Ex­port­ing Coun­tries (OPEC) is a wild card. Even though the dom­i­nance of Rus­sia and US has grown in the global oil mar­kets, OPEC still wields a sig­nif­i­cant in­flu­ence. So, the volatil­ity in oil prices ow­ing to OPEC’S pro­duc­tion cuts will be a ma­jor chal­lenge in the com­ing year.

An­other as­pect that will play a defin­ing role in the per­for­mance of the econ­omy is the on­com­ing elec­tions in May. As is the wont of the po­lit­i­cal class in In­dia, the gov­ern­ment is ex­pected to boost spend­ing in the months lead­ing up to the elec­tion, es­pe­cially to­wards the farm­ing com­mu­nity, to gar­ner voter sup­port for the rul­ing party. Con­ver­sa­tions around farm loan waivers have al­ready picked up fol­low­ing the BJP’S dis­ap­point­ing per­for­mance in the re­cent state elec­tions. Such ef­forts are bound to pres­sure the state’s fis­cal goals, which are al­ready in jeop­ardy con­sid­er­ing the gov­ern­ment had al­ready reached its an­nual bud­getary tar­gets in Oc­to­ber it­self. Even though these moves might re­sult in short-term growth spurts, the im­pact on the econ­omy’s growth in the sec­ond half of the year will de­pend on the elec­toral out­comes.


The lend­ing ac­tiv­i­ties of the banks will be an­other de­ter­mi­nant of the re­vival in eco­nomic ac­tiv­ity of the coun­try. Banks have be­come ex­tremely risk-averse in grant­ing loans due to in­creased scru­tiny by the RBI on ac­count of the mount­ing piles of stressed as­sets. Hope­fully, 2019 will be the year when the prob­lem of bad loans will fi­nally move to­wards res­o­lu­tion and stop be­ing an im­ped­i­ment to growth.

With a tepid global eco­nomic sce­nario, sub­dued do­mes­tic sen­ti­ment, and an elec­tion that is bound to bring a coali­tion gov­ern­ment into power, the fu­ture prospects for the econ­omy do not seem promis­ing. The suc­ces­sive gov­ern­ment is likely to take charge in a less than ideal eco­nomic en­vi­ron­ment and will face sig­nif­i­cant chal­lenges to in­fuse sta­bil­ity and stronger growth into the econ­omy. The task is cut out for them.

The econ­omy was surg­ing at 8.2 per cent in the quar­ter ended June 2018 - the fastest rate for any ma­jor econ­omy in the world. Even though In­dia still car­ries that dis­tinc­tion, the growth rate slowed down to­wards the end of the year to 7.1 per cent.

Fu­elled by pol­icy re­forms and re­bound in credit, In­dia’s econ­omy is fore­cast to ex­pand by 7.5 per cent dur­ing the 2019-20 fis­cal year and re­tain its po­si­tion as the fastest grow­ing ma­jor econ­omy in a world of slow­ing growth, ac­cord­ing to the World Bank.

The Bank’s Global Eco­nomic Prospects (GEP) re­port re­leased kept the fore­casts made for In­dia in its June re­port for the next fis­cal year and the 7.3 per cent es­ti­mate for the cur­rent fis­cal year, up from 6.7 per cent recorded in 2017-18.

How­ever, it warned that in South Asia, the up­com­ing elec­tion cy­cle “el­e­vates po­lit­i­cal uncer­tainty in the re­gion”.

“The chal­leng­ing po­lit­i­cal en­vi­ron­ment could ad­versely af­fect the on­go­ing re­form agenda and eco­nomic ac­tiv­ity in some coun­tries,” it added.


The GEP pre­sented a gloomy out­look for the world as a whole: Growth was pro­jected to slow to 2.9 per cent for the cur­rent year, down from the es­ti­mated 3 per cent for the last year and to grow only by 2.8 per cent in the next two years.

It blamed trade ten­sions and slow­down in man­u­fac­tur­ing for the pes­simism. The re­port said: “In­dia is fore­cast to ac­cel­er­ate to 7.5 per cent in fis­cal year 2019-20 as con­sump­tion re­mains ro­bust and in­vest­ment growth con­tin­ues, and as (eco­nomic) ac­tiv­ity ben­e­fits from re­cent pol­icy re­forms and a re­bound in credit.”

For the 2020-21 and 2021-22 fis­cal years, the GEP has pro­jected a growth rate of 7.5 per cent.

The World Bank’s 7.5 per cent growth pro­jec­tion for the next fis­cal year is slightly higher than the 7.4 per cent made by the In­ter­na­tional Mon­e­tary Fund last Oc­to­ber. But the GEP’S es­ti­mate of 7.3 per cent for the cur­rent fis­cal year falls be­tween In­dia’scen­tral­statis­tic­sof­fice(cso) fig­ure of 7.2 per cent and the Re­serve Bank of In­dia’s 7.4 per cent.

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