World economies
THE economy of India is the seventh-largest in the world measured by nominal GDP and the third-largest in terms of purchasing power parity.
According to Global Wealth Report 2016 compiled by Credit Suisse Research Institute, India is the second most unequal country in the world with the top 1pc of the population owning nearly 60pc of the total wealth.
India has prospered, registering economic growth of around 9pc in the pre-2008 years but accelerated with a growth of 7.4pc in 2015-16, breaking its own record of being a two-trillion dollars economy, according to a recent report by the ADB.
The World Bank has also declared India as the fastest-growing economy of 2017 at 7.8pc on the strength of robust consumer demand from a general increase in wages that offset a slowdown in investment.
While private and public consumption has depicted steady growth, private investment remains weak, dragged down by low capacity utilisation and the weak financial position of some corporations. Job creation in the organised sector has also remained subdued.
Robust growth has been accompanied by a decline in inflation and the current account deficit. The decline in merchandise imports is driven by weak business investment.
Lower gold imports have kept the current account deficit to below 1.5pc of GDP. The combined deficit and debt of the central government and states are high compared with other emerging market economies. The weak part of the economy looks like being business investment.
One factor that could mean economic growth ahead in 2017 is the foreign direct investment figures.
In recent days, the Reserve Bank of India has announced plans to allow foreign investors to own up to 10pc of Indian companies, and 40pc of supranational companies, a move which is all-but-guaranteed to bring an influx of cash into the country.
The Modi government recent decision to withdraw big rupee notes by demonetising the Rs500 and Rs1,000 banknotes, accounting for about 86pc of cash in circulation, will adversely impacted business activity.
According to the RBI, banknotes worth over $74bn in old cash has been sucked out of the economy since Prime Minister Modi’s abrupt announcement.
Analysts estimate economic growth to fall by up to one-percentage points over the next 12 months, while longer-term gains will depend on follow-up reforms. According to the Institute of International Finance, the economy could pull growth down by more than 2pc over the next two-quarters as consumption declines along with government revenues.
The cash crunch is expected to paralyse economic activity in the short-term, and the 2017-18 GDP growth is likely to be 5.8pc. The Ambit Capital, expects GDP growth to decelerate from 6.4percent in first-half by 0.5pc in the second-half with a distinct possibility of GDP growth contracting in third-quarter of this year.