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India's GDP growth lead over China might end this year: Unctad

Subhayan Chakraborty/New Delhi 15 Sep 17 | 01:18 AM

After racing past China for two years, India's Gross Domestic Product (GDP) growth in 2017 is expected to return to the same level as its northern neighbour at 6.7 per cent, according to a United Nations body.

A report published on Thursday by the UN Conference on Trade and Development (Unctad) forecasts 6.7 per cent growth in 2017, a four-year low, down from seven per cent last year.

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The agency calculates GDP growth at constant 2005 prices, in dollars. By its calculations, we had lower growth of 6.3 per cent in 2013. China's GDP growth rate had fallen consistently for six years till 2016, from when it is expected to stabilise.

While Unctad calculates growth based on calendar year, India officially follows the financial year format comprising the April-March period.

On that note, government figures show that in the first quarter (April-June) of FY18, the growth in GDP fell to 5.7 per cent, the lowest since the Narendra Modi government came to power in 2014. Experts say this was largely a fallout of the scrapping of Rs 500 and Rs 1,000 notes in November 2016, which had led to massive fall in demand.

Overall growth of world economy is estimated to stand at 2.6 per cent in 2017, marginally more than the 2.2 per cent in 2016 and the same level in 2015. This is because of the continued low growth in Japan, the United States and core euro zone economies, apart from a simultaneous slow down in Britain as well, Unctad believes.

On South and Southeast Asia, the report says the export-led growth strategy of nations in the region are coming under severe strain, with continuing weakness in external demand, volatile capital flows and tightening of global financial conditions.

These economies, including India, are unlikely to see growth rates return to pre-2008 levels, or the time when the global crisis had set in, any time soon.

Exports have continued to remain low for cyclical and structural reasons, the report said.

Merchandise export growth slowed to 3.94 per cent in July, even as India witnessed 11 straight months of rise in outbound trade.

The rate of growth has continuously declined since March, when it hit a high of 27 per cent- the steepest in a little over five years.

The gradual slowdown in China is expected to continue as it rebalances its economy towards domestic markets. However, the explosion of domestic debt there since the 2008 crisis has acted as a major hurdle, thereby, impeding sustained growth.

Grappling with a similar issue, India's struggle in dealing with an exploding rise in stressed and non-performing assets (NPAs) entrenched in the banking system has been flagged by the report.

"Data for all banks (public and private), relating to December 2016, point to a 59.3 per cent increase over the previous 12 months, taking it to 9.3 per cent of their advances, compared with a non-performing assets to advances ratio of 3.5 per cent at the end of 2012," the report mentioned.

Unctad has suggested a significant and coordinated break with fiscal caution, along with austerity in major economies to break out of the current low growth cycle.

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