A cautious economic policy, reduced inflation rate, and structural reforms in some areas are helping the Indian economy to grow at 7.8 percent in 2017–18. “Economic growth in India edged up to 7.6% in 2015 compared with 7.3% in 2014, making India the fastest-growing large economy in the world”, according to the UN Economic and Social Commission for Asia and the Pacific (ESCAP) 2016 report. On the inflation front, the report estimates that last year’s rate fell to 5 percent from 6.7 percent in 2014, but is expected to rise to 5.2 percent this year and 5.6 percent next year.
“The macro-economic policy has been cautious, especially on the fiscal side but this has been a positive development in order to provide a good framework to increase the sentiment of the consumer”, said Sebastian Vergara, the economic affairs officer at the UN’s Department of Economic and Social Affairs (DESA). “In some areas, the Indian government has made important efforts and those efforts are starting to pay off in terms of increase in investment but there are some areas where structural reforms are having some slow progress”, he added.
The report stressed the importance of private consumption as the main driver of the growth story in India in contrast to some of the countries in the region. This is “reflected in robust services activities relating to trade, finance, transport and communications, and real estate”, it said. The positive spillovers of stronger growth in India into other major economies in the sub-region are, however, small in view of the limited trade and financial inter-linkages. Despite a recent increase, the sub-region’s economic growth rate remains below its potential.
The implementation of Goods and Services Tax (GST) is a crucial reform that could further strengthen the economy. The overall strength of domestic demand will depend on progress made in implementing structural reforms, and how rapidly large-scale stalled infrastructure projects are unlocked. Some breakthrough has been made in reforming fiscal policy, such as the rationalisation of fuel price subsidies, but the implementation of the GST remains an important reform that is being held up due to political deadlock.
The report also appreciated various initiatives of the Indian government, such as the Micro Units Development and Refinance Agency (MUDRA) bank, Jan Dhan Yojana, Skill India, Make in India, and the 100 smart city mission.
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