India remains fastest growing economy ahead of China despite ups, downs: India remained ahead of China to retain the tag world’s fastest growing large economy withstanding several ups and downs, a spike in oil prices and global trade war like situation during 2018. Indian economy’s roller-coaster ride during the year gone by was best captured by the GDP growth. In the first quarter of 2018-19 ending 30 June, it grew at an impressive 8.2 percent, after 7.7 percent in the first three months of the year.
Then it slipped to 7.1 percent in the next quarter ending 30 September. Fitch Ratings slashed India’s GDP growth forecast to 7.2 percent for the current fiscal, from 7.8 percent projected in September, citing higher financing cost and reduced credit availability. According to NITI Aayog Vice-Chairman Rajiv Kumar, the focus of the government in 2019 will be to expedite reforms with a view to accelerate growth.
“India will grow at around 7.8 percent in the next calendar year and investment cycle that has already started picking-up will gather further strength and we will see more private investments,” Kumar said. Experts, however, expect that moderating growth can force the government to spend more before the next general elections and that could lead to fiscal pressures. Global factors such as sudden zoom in crude prices (which are now easing), strengthening US dollar, slowing growth in the wake of US-China trade war and the US Federal Reserve hiking interest rate for the fourth time in a year did take the toll on India’s economy.
The banking sector ruled the headlines in 2018. The year opened with India’s biggest banking scam coming to light. On 14 February, state-owned Punjab National Bank said it had detected a Rs 11,400 crore scam where billionaire-jeweller Nirav Modi allegedly acquired fraudulent letters of undertaking from a branch in Mumbai to secure overseas credit from other Indian lenders.
The case has gathered a long political traction, with the government making little progress in bringing back the absconding accused. The year ended with a rare face-off between the Reserve Bank of India and the Central government. Urjit Patel’s resignation a few weeks later was seen as a culmination of the tussle in December. The main trigger was the government’s demand to relax restrictions on weak public-sector lenders, which slowed down credit growth. For the first time, the government threatened to use its special powers under Section 7 of the RBI Act. The cycle of events at the RBI brought to the fore concerns about the RBI’s autonomy.
The RBI-government tussle sent shock waves far and wide. The country’s leading infrastructure finance company IL&FS defaulted on payments to lenders. It triggered panic among a large number of investors, banks and mutual funds associated with the company. The IL&FS defaults were even being seen as India’s Lehman Brothers moment that had triggered the global financial crisis in 2008. The government wanted the RBI to provide relief to non-banking finance companies impacted by the IL&FS defaults.
However, the economy witnessed a big positive development — the progress made under the Insolvency and Bankruptcy Code. Tasked with helping recover unpaid corporate loans, the National Company Law Tribunal (NCLT) has helped resolve insolvency and bankruptcy proceedings involving more than Rs 60,000 crore (during Apirl-September 2018-19), and the kitty is expected to swell beyond Rs 1 lakh crore in 2019 with several big-ticket default cases pending.
A rapidly depreciating rupee and steeply rising petrol prices played havoc with India’s current account deficit (CAD). It widened to 2.9 percent of the GDP in the second quarter of the fiscal compared to 1.1 percent in the year-ago period, mainly due to a large trade deficit.