World Economic Situation and Prospects: 2018 View on India By N R Bhanumurthy NIPFP, New Delhi

Main takeaways…. On GDP growth… Acceleration in the global growth…to reach at 3% in 2017 (from 2.4 in 2016) This is contributed by strong growth in developed countries and East & South Asia ….the growth is uneven with commodity exporting countries and conflict affected countries still reeling at low growth ..prospects remain challenging Modest revival in productive investments that accounted for 60% of global growth While global trade rebounded, protectionist policies could reverse this trend Highlights four key areas for long term sustainable growth: Increasing economic diversification Reducing inequality Strengthening financial architecture Tackling institutional deficiencies

Main takeaways…. On India… GDP growth to be at 6.7% for 2017-18…but this reflects a sharp downward revision by 1% (p.3) It is expected to have bottomed-out as the report predicts 7.2% and 7.4% for the next two years Inflation also moderated sharply (reduced by 2.2% compared to previous forecast) (p.11) “…the outlook for India remains largely positive, underpinned by robust private consumption and public investment as well as ongoing structural reforms” (p.122) However “…anemic performance of private investment remains a key macroeconomic concern”. Credit growth subdued despite monetary easing…while recapitalization and IBC could revive credit growth (p.124) Two major concerns: Strengthening fiscal accounts (especially through widening tax base) and addressing infrastructure deficit

Some comments Growth forecasts are consistent with median forecast (and RBI)..our own forecast is close to 7% … …QII numbers (6.3%) could be revised upwards This strong recovery is largely due to “Confidence channel” backed by many reform measures that are initiated (EoDB & Moody’s) Not sure if the interest rate channel works (especially in the context of normalisation of monetary policies in Developed countries) Not much discussion on the role of fiscal policy and GST implementations However, for India, achieving FRBM could become a major challenge in the context of GST as well as recent stimulus measures Achieving 3.2% fiscal deficit may not be an issue But quality of expenditure is most important than FD target Some good news on the disinvestment side On the external front, exports revive while exchange rate and foreign capital inflows turn volatile

Some comments There are many downside risks especially on the external front World oil prices: will it stabilize at 60? 65? 70?? Extent of normalization of monetary policy in US and its impact on exchange rates, foreign capital, external debt… “…largely uncharted territory” …”the weakening, and even breakdown, of fundamental macroeconomic relationships ..presents a huge challenge for policy makers” (p.70) RBI needs to be more cautious and track open-economy macro issues more than the domestic growth concerns Attracting savings (both domestic and foreign) should be the focus But there are some emerging analytical issues for India…

Contemporary issues Some of the issues are: Is there a need to relook at FRBM Committee recommendations? Relook at 42%? What happens to SDGs? Competitive loan waivers and status of state finances? Post- GST implementation: Revenue Buoyancy? Inflation & Growth? Recent appreciation of exchange rate: impact on exports/imports/Growth? What is the Potential Growth for India --7.5%? Can it generate necessary employment? Structural Transformation? Can India achieve double-digit growth?

Contemporary issues Some of the issues are: Crisis in the corporate & banking sector: Whether recent reforms help? Recapitalization is a solution? US FED policy tightening: impact on exchange rate, capital flows? Reviving private investments: does rate cut matter? Excess capacity? Public investment?

On reviving investments in India? Varuum…. Aanaa… Varaadhu..!!

Thank you