Bharat, holds the post of ‘Good Hope’ in the floods of adversities, shows much promising expectations of becoming the new economic power from emerging markets soon
Amidst global economic slowdown Bharat emerges as the only star shining with a projected GDP of 7.8 per cent, according to the recent World Bank Global Growth Prospects in 2016 report. After the China shock wave spillover, World Bank’s expectations fell short for 2016 from 2.6 per cent in 2015 to 2.4 per cent. The disappointing figures was mainly due to a continued deceleration of economic activity in emerging and developing economies amid weakening commodity prices, global trade, and capital flows. Bharat is the largest economy in South Asian Region (SAR) and only economy in BRICS which is expected to expand year-on-year basis in 2016. Although World Bank deteriorates Bharat’s GDP growth prospects to 1 percentage point from 2 percentage point, Bharat still expected to show greater expansion than rest of the world.
Despite a modest recovery in advanced countries, post-crisis the developing countries growth slowed dipped to low. Continued global weakening of trade, capital flows and commodities prices worsen the prospects for developing world. With strengthening Dollar and depreciating Yuan – currency pressures have increased for some commodity exporters. Domestic challenges have intensified as well, with elevated private sector debt, slowing credit, and weaker productivity growth. The prospects of rising borrowing costs combined with lingering vulnerabilities in many developing countries could heighten the risk of financial market turbulence in Bharat. Major high-income countries gained recovery traction last year, which is expected to shadow due to slowdown in Emerging Markets. According to World Bank report—“Growth forecasts for China have been revised down to 6.9 per cent in 2015 and 6.7 per cent in 2016. China’s rebalancing away from import-and commodity-intensive sectors and economic contraction in Brazil and Russia appear to have played a particularly significant role. Given the rising importance of “south-south” trade flows, developing-country exports have been negatively affected. Currency depreciations have thus far shown limited benefits for exports, which could partly reflect reduced exchange rate elasticity.”
Developing countries slowdown is the effect of domestic and external challenges, which reflects both cyclical and structural components. Domestic difficulties like slowing productivity growth, policy uncertainty have led to contractionary monetary and fiscal policies in some countries. Persistently low commodity prices, subdued global trade, spillovers from weakness in major emerging markets are the major external headwinds faced by the economies. The developing countries are expected to gain the modest pickup in activity in 2016 and 2017 only if; there are continued growth momentum in high-income countries, stabilisation of commodity prices, still accommodative monetary policy in major economies, and a steady process of rebalancing in China.
When the pictures are so gloomy all round the world, what makes Bharat come up as the ‘Bright Star’?
The report from World Bank shows that SAR and BRICS are not economically well integrated. Such limited global and regional economic integration have constrained the ability to do business across borders which weighed on competitiveness, growth and job creation. Although this costs on opportunities, this structural disintegration strengthened Indian economy to remain resilient on the global slowdown.
It was found that a 1 percentage point decline in US GDP is estimated to cause 0.12 per cent fall below baseline in Bharat’s GDP. While its far more volatile for other economies. The ongoing fiscal consolidation in Bharat trimmed central government’s fiscal deficit close to 4 per cent of GDP (on a 12-month rolling basis), from a peak of 7.6 per cent in 2009.
The estimates suggest that a 1 per cent negative growth shock in Bharat result in a spillover of 0.6 percentage points decline in Bangladesh, and a 0.2 percentage points fall in Sri Lanka. On contrary, positive growth in bharat, though modest, does spillover to Pakistan, Sri Lanka and Bangladesh. This shapes the growth prospects for SAR and aggregate to 7.3 per cent. Specifically, if BRICS growth decline by 1 percentage point it will cause lower growth in other emerging markets by 0.8 percentage points, in frontier markets by 1.5 percentage points, and in the global economy by 0.4 percentage points over the following two years. The Spillovers could go considerably magnificent if the BRICS growth slowdown were combined with financial market stress. The reduced external vulnerabilities will help Bharat withstand volatility in global financial markets.
The projected contraction in Brazil and Russia along with China’s declining GDP are the main drivers of global slowdown. The external headwinds are too strong to impede but Bharat will meander the route through the troughs. Bharat receives over 90 percent of the SAR’s FDI. The tension in other emerging markets will bring capital and portfolio inflows towards Bharateeya markets.
The logjam in Upper House over GST bill could hamper the government’s ability to pace up the spending on infrastructure needs and preserve the status quo of fragmented domestic markets. In addition, although Bharat has strengthened the credibility of the macro policy framework, high levels of NPAs in the banking sector, concentrated in construction, natural resource and infrastructure sectors, if left unaddressed could hinder a pickup in investment. Other supportive factors that work in favour for Bharat are strengthening domestic business cycle and, reformative policy environment for better economic and business progress. Of course, the continuing subdued crude prices will help to assuage inflation, but higher government wages will fuel demand and urban spending. Bharat, holds the post of Good Hope in the floods of adversities, shows much promising expectations of becoming the new economic power from emerging markets soon.
Akanksha Goel (The writer is a market analyst)