India has become the world’s sixth-biggest economy, pushing France into seventh place, according to updated World Bank figures for 2017. India’s gross domestic product (GDP) amounted to $2.597 trillion at the end of last year, against $2.582 trillion for France. India’s economy rebounded strongly from July 2017, after several quarters of slowdown blamed on economic policies pursued by Prime Minister Narendra Modi’s government.
India, with around 1.34 billion inhabitants, is poised to become the world’s most populous nation, whereas the French population stands at 67 million. This means that India’s per capita GDP continues to amount to just a fraction of that of France which is still roughly 20 times higher, according to World Bank figures.
Manufacturing and consumer spending were the main drivers of the Indian economy last year, after a slowdown blamed on the demonetisation of large banknotes that Modi imposed at the end of 2016, as well as a chaotic implementation of a new harmonised goods and service tax regime.
India has doubled its GDP within a decade and is expected to power ahead as a key economic engine in Asia, even as China slows down.
According to the International Monetary Fund, India is projected to generate growth of 7.4% this year and 7.8% in 2019, boosted by household spending and a tax reform. This compares to the world’s expected average growth of 3.9%.
The London-based Centre for Economics and Business Research, a consultancy, said at the end of last year that India would overtake both Britain and France this year in terms of GDP, and had a good chance to become the world’s third-biggest economy by 2032.
At the end of 2017, Britain was still the world’s fifth-biggest economy with a GDP of $2.622 trillion. The US is the world’s top economy, followed by China, Japan and Germany.
IMF has underscored the significance of reforms in other key sectors like education, health and improving the efficiency of the banking and financial systems.
The Indian economy now seems to be on its way to recovering from disruptions caused by demonetisation and roll-out of goods and services tax, the IMF said today. At the same time, the IMF has underscored the significance of reforms in other key sectors like education, health and improving the efficiency of the banking and financial systems.
India’s economy has expanded strongly in recent years, thanks to macroeconomic policies that emphasise stability and efforts to tackle supply-side bottlenecks and structural reforms. Disruptions from demonetisation and the rollout of the goods and services tax (GST) did slow growth,” Tao Zhang, Deputy Managing Director of IMF, told PTI in an interview.
“However, with the economy expanding by 7.2 per cent in the latest quarter, India has regained the title of the fastest-growing major economy, Zhang said.
Calling this development a “welcome change”, Zhang said the growth prospects remain positive.
“That said, the Indian economy would benefit from further reforms, such as enhancing health and education, encouraging private and public investment, and improving the efficiency of the banking and financial system. This would support durable and inclusive growth and enable India to move toward the income levels of wealthier countries, the top IMF official said ahead of his visit to India.
Given the dominance of cash in everyday transactions in the Indian economy it was inevitable that demonetization would temporarily affect economic activity, said Zhang who is travelling to India and Bhutan from March 12 until March 20.
The rollout of the GST last year was a landmark accomplishment that can be expected to enhance the efficiency of intra-Indian movement of goods and services, create a common national market, enhance tax buoyancy, and boost GDP growth and job creation, he said.
Yet the complexities and glitches in GST implementation also resulted in short-term disruptions. As I mentioned earlier, the economy now seems to be on its way to recovering from those disruptions, Zhang said in response to a question.
When asked about the latest Indian budget, which many critics say is protectionist in nature, Zhang said IMF research indicates that tariffs are broadly contractionary, reducing output, investment, and employment.
Trade tariffs may give limited relief to industries and workers that directly compete with affected imports. However, they can raise costs to consumers and other businesses that use the protected products. Tariffs also would reduce incentives for businesses to compete and improve efficiency, he cautioned.
Since the opening of the economy starting in the early-1990s, India has benefitted from trade liberalization, he observed.
Further supply-side reforms aimed at improving the business climate could enhance these benefits, the top IMF official asserted.
Noting that the IMF and India have close relations, and the two have always been good partners, Zhang said his visit is a reflection of this partnership, as is the newest regional capacity development center, SARTTAC, based in New Delhi.
The center partners with India and its South Asian neighbors to build strong institutions and implement policies that promote growth and poverty reduction in the region, he said.
My visit is an opportunity to exchange views with the Indian authorities, senior RBI officials, and representatives from the Indian business community, civil society, and others, he said.
Zhang will also have a presentation on financial technology that will take place on Monday at the National Stock Exchange of India.
We will go over the latest trends in financial technology and their effects on the global economy and India, said the top IMF official.
The country’s foreign exchange reserves rose by USD 167.8 million to USD 420.758 billion in the week to March 2 on an increase in core currency assets, the Reserve Bank of India said today.
In the previous reporting week, the reserves had declined by USD 1.13 billion to USD 420.591 billion. The reserves had touched a life-time high of USD 421.914 billion on February 9.
It had crossed the USD 400-billion mark for the first time in the week to September 8 last year, but has been fluctuating since then. In the week to March 2, the foreign currency assets, a major component of the overall reserves, rose by USD 177.2 million to USD 395.642 billion, the apex bank said.
Expressed in the US dollar terms, the foreign currency assets include the effect of appreciation or depreciation of the non-US currencies such as the euro, the pound and the yen held in the reserves.
The value of gold reserves increased by USD 8.1 million to USD 21.522 billion, the central bank said.
The special drawing rights with the International Monetary Fund declined by USD 7.4 million to USD 1.529 billion. The country’s reserve position with IMF also declined by USD 10.1 million to USD 2.064 billion, the RBI said.
India’s foreign exchange reserves rose by $1.96 billion to $421.72 billion on February 16, compared to the previous week. Foreign currency assets (FCAs), which form a key component of reserves, rose by $1.925 billion from the previous week to $396.572 billion.
India’s foreign exchange reserves rose by $1.96 billion to $421.72 billion on February 16, compared to the previous week.
Foreign currency assets (FCAs), which form a key component of reserves, rose by $1.925 billion from the previous week to $396.572 billion.
FCAs are maintained in major currencies like US dollar, euro, pound sterling and Japanese yen.
Movement in the FCAs occur mainly on account of purchase and sale of foreign exchange by the RBI, income arising out of the deployment of foreign exchange reserves, external aid receipts of the government and revaluation of assets.
Gold reserves remained stable at $21.514 billion.
Special drawing rights (SDR) from the International Monetary Fund rose by $13 million from the previous week to $1.546 billion.
SDR is an international reserve asset created by the IMF and allocated to its members in proportion of their quota at the IMF.
The Reserve Position in the IMF rose by $21.7 million to $2.087 billion.
Qatar’s economy has proven its resilience and continues to perform well amid the blockade, improving local liquidity and gaining the confidence of international investors, said Doha Bank CEO Dr R Seetharaman.
“The blockade (on Qatar by a quartet of nations) came as a rude shock to us. But Qatar has withstood… it has proven to be a resilient model. Qatar’s economy was performing around 2.5% last year.
This year we are not expecting less than 3.1% growth,” Seetharaman told Gulf Times in an interview.
He said Qatar improved local liquidity by disinvestment last year.
“If you look at Qatar economy, liquidity was under stress to start with. The government improved local liquidity. Now international investors have reposed confidence in Qatar. The banking system as a whole is improving.
“The loan to deposit ratio in the Qatari banking system has significantly improved and now stands at 112%. This is an improvement of the level, immediately post blockade, which was at 116%.”
Qatar’s banking sector had witnessed credit expansion of around 9%, the deposit book has grown of more than 10.4%, he noted.
He said in the days that followed the blockade, there were challenges in terms of international investors slowing down on Qatar.
“They were concerned about the Qatar economic momentum. Even the rating agencies looked sceptical, which explains the negative outlook on the sovereign.”
But, Seetharaman said, Qatar’s ‘AA’ rating, which is still very high, has not been challenged although the international rating agencies have changed the sovereign outlook to negative. The high rating (A) of Qatar’s banks is also not challenged.
Currently, Qatar holds Aa- by Fitch, AA- by S&P and Aa3 by Moody’s.
“With strong exports, positive economic outlook, and natural gas markets unaffected by the economic blockade, the overall growth for Qatar remains sustainable,” Seetharaman noted.
The International Monetary Fund (IMF) in its latest World Economic Outlook revised up its forecast for world economic growth in 2018 and 2019, saying sweeping US tax cuts were likely to boost investment in the world’s largest economy and help its main trading partners.
Seetharaman also said new global forecast has a 3.9% growth this year and next. The advanced economies are expected to grow by 2.3% in 2018 and 2.2% in 2019.
The emerging and developing economies are expected to grow by 4.9% in 2018 and 5% in 2019.
India is projected to grow at 7.4% of its gross domestic product (GDP) in 2018 making it the fastest growing economy among emerging economies following last year’s slowdown due to demonetisation and the implementation of goods and services tax.
China, which is spearheading the ‘Belt and Road’ concept is expected to grow up to 6.6% this year, he added.
India’s foreign exchange reserves swelled by USD 4.12 billion to a new high of USD 421.914 billion on a healthy increase in the core currency assets and uptick in the gold stock, the Reserve Bank said today.
The total reserves had risen by USD 3 billion to USD 417.89 billion in the previous reporting week.
The reserves had crossed the USD 400-billion mark for the first time in the week to September 8, 2017 but have been fluctuating since then.
However, there has been a continuous surge since the start of this year for the fifth straight week. In reporting week to February 2, foreign currency assets, a major component of the overall reserves, rose by USD 3.025 billion to USD 396.769 billion, the RBI said.
Expressed in US dollar terms, the foreign currency assets include the effect of appreciation or depreciation of the non-US currencies such as the euro, the pound and the yen held in the reserves.
The value of gold reserves rose USD 1.092 billion to USD 21.514 billion during the week, the central bank said.
The country’s special drawing rights with the International Monetary Fund rose by USD 3.2 million to USD 1.547 billion, while the country’s reserve position with the Fund jumped by USD 4.3 million to USD 2.084 billion during the reporting week, the central bank said.
The disruptive impact of demonetisation announced last year is a temporary phenomenon and the scrapping of the high-value currency would bring “permanent and substantial benefits”, according to the International Monetary Fund (IMF).
In an interview to CNBC TV18, IMF Economic Counsellor and Director of Research Maurice Obstfeld said that although demonetisation, as well as implementation of the Goods and Services tax (GST) caused short-term disruptions, both measures would bring long-term benefits.
“The costs of demonetisation are largely temporary and we see permanent and substantial benefits accruing from the move,” Obstfeld said.
Demonetisation caused long queues outside banks.
“Both demonetisation and the GST introduction will bring long-term benefits, though these caused short-term disruption,” he said.
The IMF Chief Economist described GST as a “work in progress” to which the Indian economy is “gradually adjusting”.
With businesses going into a “destocking” mode on inventories in anticipation of the GST rollout from July 1, sluggish manufacturing growth, among other factors, pulled down growth in the Indian economy during the first quarter of this fiscal to 5.7 percent, clocking the lowest GDP growth rate under the Narendra Modi dispensation.
Breaking a five-quarter slump, however, a rise in manufacturing sector output pushed the growth rate higher to 6.3 percent during the second quarter (July-September) of 2017-18.
Obstfeld also listed some of the reforms being undertaken by the Indian government that have impressed the multilateral agencies.
“The government has taken important first steps like bringing in the Insolvency and Bankruptcy Code, which helped India improve its position substantially in the World Bank’s ‘Ease of Doing Business’ rankings,” he said.
He also mentioned the recent recapitalisation plan for state-run banks announced by the government and the Asset Quality Review of commercial banks earlier ordered by the Reserve Bank of India (RBI).
Both measures are designed to address the issue of massive non-performing assets (NPAs), or bad loans, accumulated in the Indian banking system that have crossed a staggering Rs 8.5 lakh crore.
In a report released in Washington on Thursday, the IMF cautioned that the high volume of NPAs and the slow pace of mending corporate balance sheets are holding back investment and growth in India even though structural reforms have helped the nation record stronger growth.
The IMF’s Financial System Stability Assessment (FSSA) for India said that overall “India’s key banks appear resilient, but the system is subject to considerable vulnerabilities”.
“The financial sector is facing considerable challenges, and economic growth has recently slowed down,” the report said.
“High non-performing assets and slow deleveraging and repair of corporate balance sheets are testing the resilience of the banking system, and holding back investment and growth.”
“Stress tests show that… a group of public sector banks are highly vulnerable to further declines in asset quality and higher provisioning needs,” it added.