World Economy

India Stays World’s Fastest Growing Major Economy in Q1

Industrial output rose 2.7% in March from a year earlier.Industrial output rose 2.7% in March from a year earlier.

India remained the fastest growing major economy in the world last quarter, with growth buoyed by an improved performance in manufacturing and services, a Reuters poll of economists found.

Prime Minister Narendra Modi’s ban of high-value currency notes last year had a major short-term impact on demand but private and public consumption has recovered.

The median forecast from a poll of 35 economists showed the economy grew 7.1% annually in the first three months of this year. Forecasts ranged from 6.5 to 7.8%.

Annual growth was 7% in the quarter ending December, and 7.9% in the January-March quarter last year.

“The demonetization drive barely impacted the economic momentum in the second half of FY’17. Most of the high-frequency indicators showed only a marginal slowdown and were quick to recover,” said Tushar Arora, senior economist at HDFC Bank.

India’s industrial output rose 2.7% in March from a year earlier, beating the median consensus of 1.5% growth in a Reuters poll. Factory and services activity expanded for most of the first quarter of 2017, rising to a five-month high in March, indicating the effects from demonetization were short lived.

This acceleration in economic growth was partly driven by favorable domestic factors, including a significant improvement in the transmission of past central bank policy rate reductions into banks’ lending rates, encouraging investment.

In addition, infrastructure spending is expected to support growth, as will higher agricultural output if the monsoon rains prove favorable.

The economy is also expected to benefit from the introduction of a nationwide goods and sales tax, eliminating multiple state sales taxes, making it far easier to do business in India. The GST is expected to come into effect from July 1.

“The GST will boost Indian GDP at least by 100-150 basis points. It won’t happen right after July 1, but probably by the end of FY18,” said Karan Mehrishi, ýlead economist at ýSMERA Ratings Limited.

Nothing symbolizes how far, and fast, India has moved in terms of opening its markets than last week’s abolition of the Foreign Investment Promotion Board. Set up as part of the 1991 economic reforms, the FIPB was a high-level inter-ministerial group that cleared foreign investment proposals in the country at a time when most investment avenues were off bounds.

At a time when bringing in foreign investment also meant a plethora of clearances from various ministries, the FIPB served as a one-window clearance—and no matter which ministry it was housed in, the prime minister’s office was always keeping a watch on it.

Over a period of time, as the economy grew stronger and corporate India became more competitive, various restrictions on foreign investment started getting relaxed. Indeed, relaxing of FDI restrictions went almost hand in hand with the lowering of import duties since both symbolized the ability of Indian firms to take on global competition.

Add new comment

Read our comment policy before posting your viewpoints