Indian economy to witness faster than expected growth in 2018
- Improved domestic conditions, potential revival in rural sector and small scale businesses and increase in infra-structure projects will drive India’s growth in 2018 and beyond
- Reforms like GST and demonetization are playing crucial roles in formalizing India’s informal economy and unleashing its potential
- Increasing debt, twin balance sheet issues and trade protectionism, however, may pose challenges to growth in India and around the globe
New Delhi, 13 March, 2018: The 4th edition of Voice of Asia report titled ‘Three reasons Asia will experience stronger than expected growth in 2018’ was released today. The report predicts a faster than expected growth for Indian economy against the backdrop of rising trade protectionism, increasing crude oil prices and volatile market conditions. The improvement in domestic conditions, the report says, is a positive sign that growth is picking up and will continue to maintain strong momentum in 2018, retaining India’s position as the ‘fastest growing large economy’ in the world.
Anis Chakravarty, Partner and Lead Economist, Deloitte India says, “After a year of disruptions and growth slow-downs, Indian economy is consolidating the gains from the recent reforms and is moving in the right direction. With a steady increase in FDI inflows and pick-up in growth in the Q32017, 2018 will expectedly remain a period of strong growth for India with a growth rate of around 6.8 - 6.9 percent.”
The report identifies three pillars of growth for India in 2018:
a. Improved domestic conditions
India saw two major economic reforms in the past two years, viz., demonetization and implementation of GST. The negative effect of these reforms is wearing off now as there is high optimism in domestic demand in the form of consumption and revival in small scale business activities, resulting in an increase in FDI flows into the country. Further, India’s rise in World Bank’s Ease of Doing Business Index, from 130 to 100 is a significant achievement and is consequently attracting more investors to the country.
Moreover, the government has made huge strides towards financial inclusion and pushing the expansion of digital India.. Together with the path breaking reform of GSTs, India is steadily moving towards greater formalisation of the informal economy.
b. Increased infrastructure spending initiatives
India is on a mission to bridge the country’s infrastructure deficit with greater emphasis on public investment. The government has given greenlight to an INR 7 trillion infrastructure program in late 2017, with the aim to pave more than 80,000km of road by March 2022. Further, it has taken steps to collaborate with international partners to speed up the process of infrastructure building..
c. Recovery in global demand to boost India’s growth
The global economy has turned a corner, with demand rising robustly since late-2016 and it is likely to accelerate further. More than 75 percent of the world economy is now enjoying an upswing, with forecasts anticipating global growth to rise to 3.6 percent in 2017 and 3.7 percent in 2018, from 3.2 percent in 2016. Growth in advanced economies is at its fastest in three years, with OECD lead indicators pointing to slightly above trend growth.
As the global economy is in its heights after recovering from the shocks of 2008 crisis, India should take the benefit of this opportunity. India’s ability to stave off the economic gales was helped by the fact that it is much less dependent than most countries on global flows of trade and capital. And therefore, the recovery in global economic conditions should help India boost its domestic growth.
High optimism among Asian economies
Some of the largest economies in Asia have made progress in addressing what have been serious causes for concern. China has taken steps to move away from heavy reliance on construction, while actively managing risks in its financial sector, and India has put some key tax reforms in place that will yield long-term gains. Japan has also slowly been addressing fiscal issues and is now well placed to implement real structural reforms. Other Asian economies, to varying degrees, are diversifying, implementing business friendly policies, and investing in capital deepening. And now, the Asian giants are well-poised to benefit from the reforms initiated in the past and sustain their growth momentum through 2018 and beyond as high optimism continues to build up.
Despite the positive growth forecast for 2018, there are a few potential challenges which could derail progress and growth in the region. One of the major challenges facing the region is the build-up of debt from the post-2008 financial crisis period of excess global liquidity. Greater demand for housing contributes to higher house prices, leading to more collateral being available to property owners for additional borrowing. The concern is that these purchases are driving ‘irrational exuberance’, and are creating asset price bubbles, thereby putting highly-exposed household balance sheets at risk of a sudden price drop.
Stephen Smith, Deloitte Australia Economist says, “At the top of the list of challenges is the build-up of debt from the post-2008 financial crisis period of excess global liquidity. In some instances, this debt has been channelled into housing markets, raising concerns of asset price bubbles. Additionally, there is a risk that financial imbalances which have been building in China for some time could worsen.”
Besides, the spread of global protectionist sentiment is a concern for the Asian economies. The US has announced its intention to review all legacy free trade mechanisms through the lens of its “America First” trade policy. The US Trade Representative’s ongoing investigation of China’s intellectual property rights and technology transfer rules is another shot across the bow of the Sino-US trade relationship. Measures such as these would have far-reaching repercussions for the Asian Economies. However, fostering closer trade-ties and ensuring political stability in the region will help it sail through the turbulent waters and sustain its growth momentum through 2018 and beyond.
For more analysis and details on the Voice of Asia, please visit Deloitte Insights.
About Deloitte’s Voice of Asia
The Voice of Asia series brings to life the challenges and opportunities facing the Asia Pacific region today and tomorrow. There has never been a better time to create a cohesive narrative that reflects the interdependence of the region and provides a glimpse of what’s possible across Asia.
Edition four of the Voice of Asia includes three reports:
· Strength from within and demand from outside: Asia’s continuing growth opportunity
· The Flip side: Being aware of what could go wrong in 2018
· Economic outlook
Notes to the editor for reference purposes only:
This press release has been issued by Deloitte Touche Tohmatsu India LLP
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