August 23, 2017   
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ESCAP Projection


By Shivaji Sarkar

There is good news for India. It remains among the world hotspots and the growth in 2018 is to touch 7.5 per cent, says the United Nations Economic and Social Survey of Asia and the Pacific (ESCAP) report 2017.

This year, the growth is projected to be at 7.1 per cent as the country faces heightened risks related to the concentration of bad loans in the public sector banks that has reached 12 per cent in 2016. Overall the growth is to be underpinned by higher private and public consumption and increased infrastructure spending.

The ESCAP finds the threat of protectionism growing amid rising global uncertainty. The Survey estimates that a steeper than anticipated increase in these factors could reduce average regional – Asia and Pacific – growth in 2017 up to 1.2 per cent. India even in such scenario is projected to have better economic gains.

The report has a good word for the India’s Union budget and sees 25 per cent higher capital expenditure than the previous year. However, it has expressed concern–inflation that is projected to reach 5.3 per cent in 2017 and 5.5 per cent in 2018 against the official target of 4.5 to 5 per cent.

It is the most positive international system report. Only a day before the release of this report, the International Monetary Fund (IMF) had pegged India’s growth for the current fiscal year at 6.6 per cent from its previous estimate of 7.6 per cent due to the “temporary negative consumption shock” of demonetisation. The World Bank too decelerated India’s GDP growth for 2016-17 fiscal to 7 per cent from its previous estimate of 7.6 per cent.

However, Economic Affairs officer of South and South-West Asia of ESCAP Matthew Hammill, despite difficulties for lower-income individuals and households and businesses in the short run, says the note-ban has positive impact due to Prime Minister Narendra Modi’s policy initiatives announced on December 31. One of the most affirmative gains says NR Bhanumurthy, Professor, National Institute of Public Finance and Policy is the windfall revenue gains of 3.16 per cent in the wake of demonetisation.

He also notes that at least three per cent of the previous currency has not come back and that is another gain for the Government. The reserve money, the new circulated currency notes, value Rs 9 lakh crore against the previous estimates of over Rs 14 lakh crore. Further, he says that India’s district governance is now better and these are becoming the pivot for growth.

Notwithstanding its short-term disruptions, the report says one of the medium-term benefits of demonetisation was to help expand banking sector liquidity. “The country’s medium-term economic development will also benefit from recent reforms that are aimed at easing domestic supply bottlenecks, such as the implementation of the goods and services tax, amendment of a bankruptcy law and opening up of the pharmaceuticals, defence and civil aviation sectors,” it said.

The interest rates also do not matter much for private investment. So should rates on savings and lending be lowered? It is a virtual direct subsidy to the high-profit making industry and should be relooked.

The report is pessimistic on China as growth softens to 6.5 per cent in 2017 and 6.4 per cent in 2018. Inflation is to rise and the outlook is subject to downside risks. Monetary policy tightening by US President Donald Trump could result in financial volatility and capital outflows. High domestic indebtedness could act as a drag on growth. The liabilities of State owned enterprises are estimated to about 115 per cent of GDP, which could undermine Chinese fiscal stability. The social inequality will rise.

This is a risk to India also as China resorts to aggressive regional and international postures, say experts. The recent One-Belt-One-Road (OBOR) and China-Pakistan Economic Corridor (CPEC) initiative are seen as moves to increase its protectionist hegemony in South-East Asia and the Indian sub-continent. In the entire southern Asia, growth is there. The challenge, however, remains in the creation of decent and high productive jobs. The policy priority should be to create jobs in sectors where people live in poverty.

“Moreover as the sub-region is experiencing a youth bulge, in which the share of the working-age population is projected to rise at least till 2030, the need for sufficient number of decent jobs becomes urgent”. Vast majority of jobs in India, even in services are concentrated in low-productivity areas like retail services.

The share of more productive and higher skill required jobs in the Indian sub-continent, called sub-region, like managerial, professional and technical work remains below 20 per cent. India’s manufacturing at 17 per cent “is notably lower than China, South Korea and Thailand, where such shares are close to one-third”.

Informal employment, the report notes with concern, accounts for almost 90 per cent in India, Bangladesh and Pakistan, 95 per cent in Nepal and 70 per cent in Sri Lanka. “The pervasiveness of informal sector jobs has perpetuated low productivity, poverty and inequality. They receive lower wages and have limited resource to social security and other benefits”.

“Evidence suggests”, the report says, “that the bulk of the jobs created in the formal sector of Indian manufacturing are low-quality insecure jobs”. It calls for extending comprehensive social security benefits, as in many cases the Indian government is doing– old age pensions, maternal health care benefits to informal sector.

The ‘Make in India’, ‘Stand Up India’ and ‘Skill India’ policy packages envision India as a manufacturing hub of automotives, textiles, pharmaceuticals, as well as the energy and infrastructure like oil and gas, power, ports and telecommunications, says the survey. These might energise the manufacturing sector. It also notes higher investment in human resource development to increase skilled labour force. The World Bank studies show that countries with higher average years of schooling tend to have a higher share of employment in manufacturing and services and higher share of wage employment.

Overall it said, the still rapid output growth in 2016 benefited from a modest recovery in agriculture due to an improved monsoon season and robust growth in public administration following public sector salary increases. The appreciation of the rupee may not have negative impact on exports. India, observes Bhanumurthy, unlike China does not manipulate the currency rates. The Rupee should now be made an international currency.

In the economic perspective, rising rupee and falling oil prices could have a favourable balance of trade, reduce transaction costs and if managed properly could add to further growth of the economy. —INFA

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