India's growth rate to hit 7.5% in 2018, but US policies pose risk, says UN Commission

A UN commission has said that India`s growth rate is expected to reach 7.5 % in 2018, but warned that if the US policies take a very severe protectionist turn and the trend spreads, growth could be affected by as much as 1.2 % in the coming years.

The UN Economic and Social Council for Asia and Pacific (ESCAP) survey on Monday said India`s economic growth is projected to be stable at 7.1 % in 2017, before rising to 7.5 % in 2018, driven by higher private and public consumption and increased infrastructure spending.

The survey, however, warned that growth of major economies in the Asia Pacific region could be cut by as much as 1.2 % in the coming years if the US protectionist policies in trade, currency and immigration became more severe and this was combined with other countries following suit along with Brexit.

"A sharper-than-expected increase in the degree of protectionism and uncertainty is possible," ESCAP said.

"For example, several major developed and developing countries are considering non-tariff measures (NTMs) with unclear effective dates."

Loss of trade and investment "could harm employment prospects and act as a drag on productivity growth in the years to come", it said.

In particular, India`s services exports would by affected by these policies, ESCAP said.

Domestically, the survey said, there is a key risk in the financial sector because of concentration of bad loans in public sector banks.

"The gross non-performing assets ratio in public sector banks reached almost 12 % in 2016, which points to the need for bank recapitalisation," it said.

It said that a medium-term benefit from demonetisation was an expansion of banking sector liquidity.

Expanding India`s manufacturing base, especially in relatively labour-intensive sectors, will be important for making productivity gains, the survey said.

According to the survey, recent reforms such as introduction of the Goods and Services Tax (GST), amendment of the bankruptcy law and opening up of the pharmaceuticals, defence and civil aviation sectors will boost the growth in the medium-term.