Shivaji Sarkar
Market is favourable for India with the boom in youth population, appreciation of rupee and reduction in oil prices. It’s time to build upon the formal sector
India remains among the world’s hotspots and the growth in 2018 to touch 7.5 per cent, says the United Nations Economic and Social Survey of Asia and the Pacific (UNESCAP) report 2017.
The growth is projected to be at 7.1 per cent in 2017, as the country faces heightened risks related to the concentration of bad loans in the public sector banks, that reached 12 per cent in 2016. Overall, the growth is to be underpinned by higher private and public consumption and increased infrastructure spending.
The UNESCAP 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.
It has a good word for the Union Budget and sees a 25 per cent higher capital expenditure than the previous year. A concern, it has expressed, is the 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 five per cent.
It is the most positive international system report. Only a day before the release of this report 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 seven per cent from its previous estimate of 7.6 per cent.
However, Matthew Hammill, Economic Affairs Officer of South and South-West Asia of UNESCAP, says thatdespite difficulties for lower-income individuals and households and businesses in the short run, the note-ban has had a positive impact due to Prime Minister Narendra Modi’s policy initiatives announced on December 31, 2016.
One of the most positive gains, NR Bhanumurthy, a professor at National Institute of Public Finance and Policy, says, 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 had not come back – and that is another gain for the Government. The reserve money, the new circulated currency notes, is valued at nine lakh crore rupees, against the previous estimates of over Rs 14 lakh crore.
He also notes 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 (GST), 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 its growth softens to 6.5 per cent in 2017 and 6.3 per cent in 2018. Inflation is to rise and the outlook is subject to downside risks. Monetary policy tightening by the 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 percent 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 move to increase its protectionist hegemony in South-East Asia and Indian sub-continent.
In the entire southern Asia, growth is taking place. The challenge, however, remains in the creation of decent and high productive jobs. The policy’s 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 become 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 (nearly 33 per cent).
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,” it observes.
“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 energy and infrastructure like oil, gas, power, ports and telecommunications, the survey says.
These might energise the manufacturing sector. It also notes higher investment in human resources development to increase skilled labour force. 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, 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, it said.
The appreciation of rupee may not have negative impact on exports. “India”, observes Bhanumurthy, “unlike China, does not manipulate the currency rates. Rupee should now be made international currency.”
In the economic perspective, rising rupee and falling oil prices could have favourable balance of trade, reduced transaction costs and managed properly could add to further growth of the economy.
(The writer is a senior journalist)
