Current Affairs 19th Dec 2017

1 . Brighter growth prospects for India by FY 2020 – HSBC
  • India’s growth prospect is likely to see a slowdown in the next two years followed by recovery in the medium term, with 2019-20 GDP expected at around 7.6 per cent, says a report by HSBC.
  • According to the global financial services major, India’s growth story has a two-part narrative.
  • The first is a slowdown and gradual recovery in the short run, likely over 2017-18 and 2018-19 as key sectors revive from disruptions related to the implementation of the goods and services tax (GST).
  • The subsequent narrative is of brighter growth prospects in the medium term (2019-20 and beyond), HSBC said in the report adding that “we forecast growth at 6.5 per cent, 7 per cent and 7.6 per cent over 2017-18, 2018-19 and 2019-20 respectively”.
  • In the medium term, GST alone may add 40 bps to GDP growth through productivity gains, it noted. The report further said “if the other side of India’s twin balance sheet problem – overleveraged companies– lingers for longer, the pace of the investment revival and GDP recovery could suffer”.
  • Moreover, inflation may begin to rise as growing consumer demand hits the wall of supply-side constraints, it noted.
  • Regarding India’s current account deficit (CAD), it is set to widen to 1.7 per cent in 2017-18 and to 1.9 per cent in 2018-19, and then reach 2.1 per cent in 2019-20 led largely by rising imports of oil and items such as electronic goods and smartphones, reflecting changing consumer preferences domestically.
  • On the fiscal front, there are upside risks to the central government’s 3.2 per cent deficit target emanating from lower-than-budgeted nominal GDP growth, a lower-than- budgeted RBI dividend, and a higher seventh pay commission bill.

 

2 . Farm debt waivers to raise state deficits by Rs 1,07,700 crore- India Ratings  
  • The farm debt waivers announced by the five large states together will widen the combined fiscal deficit of the states by Rs 1,07,700 crore or 0.65 per cent of GDP this financial year, warns a report.
  • The combined fiscal deficit of the states for FY18 has been budgeted at 2.7 per cent of GDP or Rs 4.48 trillion.
  • Uttar Pradesh, Punjab, Maharashtra, Rajasthan and Karnataka have announced farm loan waivers this year after a string of farmer suicides in these states.
  • Nine states have budgeted an increase in their fiscal deficits/gross state domestic product (GSDP) ratios this year compared to 19 states in FY17.
  • With several states announcing farm loan waivers, there is a fear that the combined fiscal deficits of the states could be much worse than the budgeted figure.
  • The report estimates that the combined fiscal deficit of the states in FY18 at 3 per cent of GDP or Rs 4.99 trillion. This is higher than the budgeted figure but considerably lower than FY17.
  • While the farm debt waivers announced by UP and Punjab are part of their respective FY18 budgets, the waivers announced by Maharashtra, Rajasthan and Karnataka are outside their budgets.

 

3 . Trade deficit with China stands at $37 bn in April -October
  • India’s trade deficit with China stood at $36.73 billion during the first seven months of the current fiscal (April-October) compared to $51.11 billion in the financial year 2016-17.
  • The bilateral trade between India and China stood at $50.19 billion during the April-October period, as against $71.45 billion in the entire 2016-17.
  • Increasing trade deficit with China can be attributed primarily to the fact that Chinese exports to India rely strongly on manufactured items to meet the demand of fast expanding sectors like telecom and power, while India’s exports to China are characterised by primary and intermediate products.
  • Chinese FDI in India, though growing, has been insignificant compared to its total investment overseas.
  • China presently ranks 17th in terms of foreign direct investment (FDI) inflows into India. The cumulative inflows from China since April 2000 to September 2017 stood at $1.73 billion.

 

4 .  India can grow at 8% for next 20 years- UN
  • After a report by United Nations predicted that India’s economy is likely to expand by 7.2 per cent in 2018 and go up further to 7.4 per cent in the following year, a senior UN official said that India can grow at 8% for the next 20 years.
  • Last week, a UN report said, “The outlook for India remains largely positive, underpinned by robust private consumption and public investment as well as ongoing structural reforms.”

WHY  UN  IS  UPBEAT  ON  INDIA’S  GROWTH  PROSPECTS ?

UN is upbeat on India’s growth prospects due to three reasons –

1 . Structural Reforms

International rating agencies and economic experts in the country see a slew of positives flowing to the country from the structural reforms such as GST and demonetisation . Reforms implemented to date will advance the government’s objective of improving the business climate, enhancing productivity, stimulating foreign and domestic investment, and ultimately fostering strong and sustainable growth .

2 . Public Investment

Vigorous public investment in infrastructure has been critical in propping up overall investment growth.The government has already pumped in a lot of public investment in the ongoing financial year. After the  government announced a mega plan of Rs 2.11 lakh crore to recapitalise the stressed public sector banks last month, Moody’s, S&P and Fitch lauded the initiative . All the three credit rating agencies have also taken note of the government’s infrastructure boost through the Bharatmala project to develop and expand approximately 40,000 km of roads at an investment of Rs 6.9 lakh crore by 2022.

3 . Strong Private Consumption

India has seen a steady rise in demand, and private consumption accounted for 57.3 % of its Nominal GDP in Sep 2017. This is one of the important factors for India’s positive economic condition.  The monetary policy, which has been able to control inflation, also has a role to play. Also fiscal policy in India  has been prudent.