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India is pegged to be the fastest growing economy in the world in 2017-18 and will be a key driver for global growth, according to the International Monetary Fund (IMF).

 

Retaining its growth forecast of 7.2 per cent for India for the fiscal year, the IMF, in its World Economic Outlook, also estimated that India would grow at 7.7 per cent in 2018-19 and said that 8 per cent growth in the medium-term is within reach. It pegged India’s growth rate at 6.8 per cent in 2016-17.

 

“Medium-term growth prospects are favourable, with growth forecast to rise to about 8 per cent due to the implementation of key reforms, loosening of supply-side bottlenecks, and appropriate fiscal and monetary policies,” said the report, which was released on Tuesday.

 

Demonetisation impact

 

Concerned about the impact of demonetisation on the economy, the IMF had in January trimmed India’s GDP forecast by 0.4 percentage points from its earlier forecast of 7.6 per cent growth this fiscal. Moreover, praising India’s efforts at structural reforms that would drive domestic growth, the IMF has listed it as one of the factors that could help boost the global economy.

 

It has pegged world output at 3.5 per cent in 2017, rising marginally to 3.6 per cent in 2018. By 2022, it estimates global growth to rise to 3.8 per cent, led by developments in the emerging market and developing economies, where growth is projected to increase to 5 per cent by the end of the forecast period.

 

However, the IMF has also listed further reforms that India must undertake, including replacing the demonetised currency and reducing labour and product market rigidities, expanding the manufacturing base, and gainfully employing the abundant pool of labour.

 

Further, it said steps should also be taken to address NPAs and recapitalise public sector banks, reduce subsidies and for timely implementation of GST.

 

Source: Business Line

Despite growing uncertainties on global growth, the World Trade Organization (WTO) has moved up its forecast on the growth in volume of global trade from 1.3% in 2016 to 2.4% in 2017 with the range expected to vary from 1.8% to 3.6%. What is even better is that the multilateral organization expects the trade recovery to continue in 2018 with the growth rates moving up further in the 2.1% to 4% range

 

The large margins of the growth forecast in trade is because rising inflation can lead to tightening of monetary and fiscal policies and slow down GDP growth across major markets and also because of the growing wave of economic nationalism that has curtailed globalization efforts in recent times. A factor that may push growth to the upside is the recovery in emerging market economies. But then a reason for worry is the substantially weakening of the linkages between global trade and global growth with the ratio even falling below 1:1 level for the first time since the turn of the century

 

The 1.3% growth in global trade volume in 2016 was because of the stagnating imports into developing even as that into developed countries touched 2%. Export growth of both segments remained stuck a little above one percent. Geographically most of the demand for imports rose from Europe and Asia. However, the growth in trade in dollar terms tells a different story. Numbers here show that global exports of goods fell by 3.3% in 2016 while global exports of services largely stagnated. But the future is brighter as global GDP growth at market exchange rates is expected to go up from 2.3% in 2016 to 2.7% in 2017 and 2.8% in 2018

 

Prospects of India’s trade recovery in 2017 is relatively better given that it has been able to withstand the global slump relatively far better than its peers. Numbers on the merchandize export show that India’s exports declined by 1.3% in 2016 to $264 billion. In comparison the exports of Asean countries declined by 1.7%, that of Asian countries by 3.7% and that of China by a still more substantial 7.7%. Other Bric countries also registered notable falls. While Brazil’s exports fell by 3.1% in 2016 that of Russia fell by a humungous 17.5%. However, though India retained its global share of 1.7% of merchandise exports in 2016, even while that of China shrunk from 13.8% to 13.25%, India’s global ranking in merchandize exports dipped from 19th position in 2015 to the 20th position in 2016 with UAE overtaking India

 

In the case of commercial services, India’s record is even more exemplary. India’s commercial services exports rose by 3.5% to $ 161 billion in 2016 even as the global exports rose by a measly 0.1% and that of Asia rose by 0.9%. China’s commercial services exports were badly hit in 2016 with the outflows declining by 4.3% to $207 billion. Across nations India’s exemplary performance in commercial service exports was surpassed only by a few developed economies like Japan and Ireland whose growth rates were a more buoyant 6.5% and 8.8% respectively. However, despite that India maintained its 8th rank among the top global exporters of commercial services

 

Given India’s relatively better export performance in 2016, it is very likely that the country would gain more substantially as global trade picks up in 2017 and 2018.

 

Source: The Times Of India

India, with a young skilled work force, high growth rate and deregulation being undertaken by the government, is set to become an important destination for foreign investment, a former top US trade official has said. “With the young skilled work force, its growth rate that is going to surpass China for the coming years as well as the market opening and deregulation undertaken by Prime Minister Narendra Modi will make this a really important destination for foreign investment,” Wendy Cutler, who was the Acting Deputy US Trade Representative under Obama administration told a Washington audience yesterday

 

Speaking at a panel discussion on the occasion of launch of Foreign Direct Investment (FDI) Confidence Index, Cutler said, India under Modi has emerged as among the favourite destinations for foreign investors. For the second consecutive year, India appears in top 10 of the index. This year, it was placed at eighth spot as against ninth last year.China has slipped to the third spot. Germany has now become the second top destination in the FDI Confidence Index after the US, which takes the fifth spot for the fifth year in a row

 

“Five of the top 10 countries are from Asia. There is a lot of optimism about investment opportunities in Asia, not only among Asian but also global investors as well. Clearly China and India seems to be the cause of this lot of optimism. India moved eighth on the index,” she said

 

Cutler said the optimism about investment in China “does not seem to be in line from what we are hearing” from not only the US business community but also the European business community as well

 

In her previous stint in the United States Trade Representative, she was responsible for the Trans-Pacific Partnership agreement (TPP), US China trade relations and US India Trade Policy Forum. “The investment climate is getting worse in China. Companies are facing a lot of restrictions in China, whether it be licensing or approval process or favourable treatment of domestic competitors or requirements to share technology. We are hearing from our companies that their optimism is declining,” Cutler said

 

Noting that the Chinese FDI in the US and vice versa should be watched closely, she said there is a growing concern that while the US and foreign companies are facing restrictions in China, there is a feeling that Chinese companies face few restrictions here in the US

 

“India on the other hand is moving towards becoming a favourite FDI destination,” she said. “When you loom at India, it is moving from a close market to an open market. The reforms that are being undertaken are perhaps not as ambitious as one would hope for. But under Prime Minister Modi, India is really under track towards opening,” she said

 

Contrasting India, a little bit with China, Cutler said that China was really open to foreign direct investment. “But we are seeing that trend going in a different direction,” Cutler said

 

“The other thing that makes me think very favourably about India is that it does not face the same demographic challenges that many Asian countries face. India with most of its population under 40 offers a very attractive destination, coupled with the high skilled nature of the work force,” she said. However, she said India is “one of the difficult countries” to negotiate

 

“So while all these developments are positive, they have a way to go here, but they are moving in the right direction,” Cutler said. Global Business Policy Council chairman Paul Laudicina said that India’s youth population gives India wage price advantage over China

 

In China, average manufacturing wages have tripled between 2006 and 2015. “This is part of the reason that coupled with a robust growth, a huge internal market, Modi government’s attempt to promote investment, the intention to abolish the foreign investment promotion board, access to the retail sector is being made more accessible. All of this makes India a robust environment,” he said.

 

Source:Financial Express

South Korean carmaker Kia Motors Corp will announce a plan for its first factory in India "soon", vice-chairman Lee Hyong-keun told reporters on Wednesday.

 

The comment, made on the sidelines of the Shanghai auto show, came after Kia and affiliate Hyundai Motor Co suffered a March sales slump in China, their biggest market, attributed to a political standoff and rising competition from local brands.

 

Kia said in a regulatory filing on Wednesday that the investment size for its India plant has not been decided.

 

India's Economic Times newspaper reported on Monday that the envisioned factory involves two phases with combined investment of $1.6 billion, in one of the biggest foreign direct investment projects in India.

 

Reuters reported in February that Kia was close to finalising Andhra Pradesh as the site for its first Indian factory, with production scheduled to start in 2019.

 

Source:Business Standard

India’s growth has been “impressive” in the recent years which makes room for tax broadening efforts by the government, according to a top IMF official.

 

“India has recorded quite an impressive growth performance in recent years. Our view is that the elimination of fuel subsidies and the targeting of social benefits has delivered in terms of allowing the union budget target to be achieved at 3.5 per cent of GDP,” Vitor Gasper, Director of the IMF Fiscal Affairs Department told reporters at a news conference here yesterday.

 

“We have been collaborating with the Indian authorities in terms of looking at fiscal structural measures, including expenditure rationalisation while protecting infrastructure investment, tax broadening efforts,” he said.

 

In this context, the rollout of Goods and Services tax (GST) is an extremely important step that will create a true unified national market in India, he said. “We see room for tax broadening efforts. We see room for more progressive income taxes in line with trends in income inequality. Perhaps more generally, we do see a case for a medium-term framework and we know that the authorities are actively working on that,” Gasper said.

 

He also said inequality has increased in both India and China. “As was the case for India, in China you see that inequality has increased. From that viewpoint, you could advocate, you should advocate social spending and taxation reform in order to address that issue in China.

 

“At the same time, it turns out that increase in social spending and change in taxation does support the transfer of expenditure from investment to consumption. That is part of the overall rebalancing of the Chinese economy,” Gasper said.

 

Gasper said globalisation and technological change have been major drivers of economic growth and cross country convergence. “More than one billion people have been lifted out of extreme poverty since the early 1980s, and most of them come from China and India,” he said.

 

“At the same time, when you focus on country indicators, you see that inequality has increased in most advanced economies and large emerging economies. Again, I am referring to China and India,” Gasper said.“The clear perception around the world of widespread increases in income inequality illustrates the dominance of national politics shaping these perceptions. Fiscal policies, government expenditures and revenues are powerful means to ensure the sharing of the growth dividend,” the IMF official added.

 

Source:Business Line