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India, China unlikely to be ‘growth poles’ for global economy: UNCTAD report

Written by  Published in Industry Friday, 15 September 2017 06:31
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Effects of demonetisation and rollout of the Goods & Services Tax regime on the informal sector and reduction in pace of credit creation may affect India’s growth prospects and the country unlikely to serve as the “growth pole’’ for the global economy in the near future, a United Nations report has said.

“Growth in the world’s two most populous economies − China and India − remains relatively buoyant, but the pace is slower than before the crisis and face some serious downside risks,” according to the UNCTAD’s Trade & Development report 2017 released on Thursday.

The report titled ‘Beyond austerity — towards a global new deal’, further pointed out that it was absence of a robust recovery in developed countries and renewed volatility of global capital flows that have constrained economic growth in developing countries.

It noted that the world economy in 2017 was picking up but not lifting off. “Growth is expected to reach 2.6 per cent, slightly higher than in 2016 but well below the pre-financial crisis average of 3.2 per cent,” it said.

A combination of too much debt and too little demand at the global level has hampered sustained expansion of the world economy, the reported stated. Giving a prescription for makeover of the world economy, the report made a case for ending austerity, clamping down on corporate rent seeking and harnessing finance to support job creation and infrastructure investment.

India’s growth performance depends to a large extent on reforms to its banking sector, which is burdened with large volumes of stressed and non-performing assets, and there are already signs of a reduction in the pace of credit creation, the report said.

“Since debt-financed private investment and consumption have been important drivers of growth in India, the easing of the credit boom is likely to slow GDP growth,” it said.

In addition, the informal sector, which still accounts for at least one third of the country’s GDP and more than four fifths of employment, was badly affected by the government’s “demonetisation” move in November 2016, and it may be further affected by the rollout of the GST from July 2017, the report added.

“Thus, even if the current levels of growth in both China and India are sustained, it is unlikely that these countries will serve as growth poles for the global economy in the near future,” it concluded.






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