India expected to achieve 7.1% growth in 2017: UN report

A United Nations (UN) on 1 May 2017 released its annual flagship report titled 'The Economic and Social Survey of Asia and the Pacific 2017'. The report was released by UN Economic and Social Commission for Asia and the Pacific (ESCAP).

The report says India is expected to achieve 7.1 per cent economic growth in 2017 as re-monetisation restores consumption and infrastructure spending increases. The report said India's growth would edge up to 7.5 per cent next year. These targets will be met by higher private and public consumption and increased infrastructure spending.

At the same time, the report also warns India by saying that the country faces heightened risks related to the concentration of bad loans in the public sector banks.

Other highlights of the projection

Inflation – It was projected to be between 5.3 per cent to 5.5 per cent in 2017 and 2018, which means it will be above the official target of 4.5 per cent to 5 per cent.

Bad Loans - The report also highlights that the concentration of the bad loans in the public sector banks carries a risk in the financial sector as it reached almost 12 per cent in 2016, which points to the need for bank recapitalization.

Reports take on Demonetisation

The annual report from ESCAP said that the economic conditions were weighed down in late 2016 and early 2017 due to an unexpected removal/withdrawal of the two biggest banknotes from the market in November 2016. These banknotes were subsequently replaced with the new currency. It says, this withdrawal led to a liquidity crunch, which in result delayed payments of wages and purchase of inputs in the industrial sector.

The report says, the impact of demonetization on the economy is expected to be transient as a slower-than-expected recovery would particularly diminish the outlook for cash-intensive sectors and supply chains for agricultural products. In regard to the same, the report also talks about the budget 2017-18 that calls for measures that will seek to mitigate the large temporary adverse shocks on income and wealth, such as expanding a low-cost housing scheme and providing more relief to the agricultural sector and credit support for small enterprises.

Notwithstanding its short-term disruptions, one of the medium-term benefits of the demonetization that took place was to help expand banking sector liquidity. The country's medium-term economic development will also benefit from recent reforms that are aimed at easing domestic supply bottlenecks, such as the implementation of the goods and services tax, amendment of a bankruptcy law and opening up of the pharmaceuticals, defence and civil aviation sectors.