Growth prospects

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Bikky Khosla | 12 Oct, 2016
India's GDP forecast has been revised upward to 7.6 percent. The International Monetary Fund (IMF) in its World Economic Outlook (WEO) last week came out with these new numbers, citing the Indian economy's resilience and robust growth momentum. Three month ago, the international organization cut the growth forecast to 7.4 percent, pointing out to sluggish recovery in private investment, but now it feels that the economy is recovering fast, due to improvement in the terms of trade, effective policy actions, and stronger external buffers. These views sound encouraging.

But when it comes to the world economy, IMF is not that optimistic. It has kept the global growth forecast unchanged at 3.1 percent in 2016 and 3.4 percent for 2017. Growth for the US economy is estimated at 1.6 percent this year and 2 percent in 2017. Overall, advanced economies, which include Europe and Japan, are expected to grow 1.6 percent this year and 1.8 percent next year. In other words, global demand will likely remain dull in these two years, and it can't be good news for our exporters. In addition, the report adds that the expected slight improvement in world economic growth from 3.1 percent in 2016 to 3.4 percent in 2017 will likely be due to rise in commodity prices. This might not bode well for the Indian economy.

Currently, our trade deficit and current account deficit are under control. Trade deficit declined to $23.8 billion in Q1 as against $34.2 billion in the year ago period, which, in turn, helped to bring down CAD to $0.3 billion during the period. In addition, food driven retail inflation is no longer a major worry, with a normal monsoon raising hope that our rain-fed Kharif harvest will be the highest ever in history at 135 million tonnes in 2016-17. So, there is nothing wrong about being optimistic, but complacency can be dangerous, particularly in the background of the dull global outlook, and if we want to ensure growth we must not overlook the concerns which are on the horizon.

Our exports, after a long period of decline, have started showing some positive signs and to ensure this momentum -- particularly in a scenario of low global demand, high commodity prices and rising protectionism -- we must improve our export competitiveness and break into emerging markets. Meanwhile, the August IIP figures point to one of the lingering challenges the domestic economy is facing -- lack of private investments. During the April-August period, capital goods output shrank by 21.4 percent. Without healthy exports and revival in private investments, I don't believe sustained high growth will be possible for us.

I invite your opinions.