India is expected to be on the top amongst the fastest-growing major economies in the world this year, according to a poll of economists conducted by Reuters. However, the poll also shows that trade clashes between the US and China might hurt India’s growth.
Economists are expressing concern regarding the recent import tariffs of US and China as a catalyst for a future global trade war, which could derail the current steadiness and strength of the global economy.
Out of the twenty-nine economists who chose to answer an extra question in the Reuters poll, twenty said there was a good chance that the Indian economy would suffer because of the US-China tariff war.
“India runs the risk of being caught in the middle of the trade spat between the U.S. and China,” Reuters quoted Hugo Erken, senior economist at Rabobank.
According to Erken, if India decides to choose a side, the jilted party is likely to react through imposed duties. At the same time, nine economists supported the idea that India was more likely to benefit from the dispute.
“Though in the short-term a trade war between U.S. and China may impact global trade including India, in the long-term, India is likely to benefit as China will be forced to devaluate its currency to remain a dominant player in the world market,” Reuters quoted R.K. Gupta, the Managing Director of Taurus Asset Management. “In that scenario, India’s exports will be more competitive with China,” he added.
The Reuters poll was taken April 11th to 18th, as the fiscal year started. The poll forecasts a 7.4% growth for the Indian economy, which is an improvement from the January polls and in sync with the International Monetary Fund’s (IMF) projection. On the same lines, the poll’s prediction for Indian growth is 7.5%, slightly short of the 7.8% touted by the IMF.
India showed a sharp drop in growth most of last year, mainly as demonetization rendered high-value currency notes useless, and the implementation of Goods and Services Tax (GST) in July last year. However, as the effect of these events dispersed, the December 2017 quarter showed India bounced back as the world’s fastest-growing major economy.
According to Reuter, inflation in India has come down this year, reaching a five-month low in March, but it still doesn’t meet RBI’s medium-term target of 4%. Also, government’s national election-related expenditures before next year is yet to show, which is estimated to spike inflation. The poll projects Indian inflation at an average of 4.7% in FY2018 till next March and 4.9% for the coming year.
The Meteorological Department’s monsoon forecast for 2018 is normal, which is good news for the agriculture sector of India. Agriculture plays a significant role in the $2 trillion Indian economy, attributing to around 15% of it, engaging more than half of the 1.3 billion population. If there is a regular monsoon it will mean an increased production in grain, which will in turn cap inflation on food prices.
The poll also states that the Reserve Bank of India (RBI), which is maintaining steady interest rates since August last year, when there was a 25 basis-point cut on the repo rate, will hold onto the current rates till the second half of next year.
Apart from India, economies in the Sub-Saharan Africa are projected to gain from global economic success. For the global economy, the poll projected the fastest ever growth since 2010, though trade protectionism has been cited as a factor that could slow it down. Nevertheless, global growth projection is at an average of 3.8% in the current year, the highest since October 2016. Although, it is lower than the IMF expectation of 3.9%.