India's economy projected to grow by 7.7% in FY 2017: UN report

It cautioned against capacity utilisation and stressed balance sheets of banks and businesses

India is projected to grow by 7.7 per cent in fiscal 2017, remaining the fastest growing large developing economy, as it benefits from strong private consumption and gradual introduction of significant domestic reforms, a United Nations report said.

The United Nations World Economic Situation and Prospects (WESP) 2017 report launched today said India's economy is projected to grow by 7.7 per cent in the financial year 2017 and 7.6 per cent in 2018, benefiting from strong private consumption.

It, however, cautioned that low capacity utilisation and stressed balance sheets of banks and businesses will prevent a strong investment revival in the short term.

China's growth, on the other hand, is projected to remain stable at 6.5 per cent for fiscal years 2017 and 2018, supported by favourable domestic demand and accommodative fiscal measures, including off-budget fiscal support through policy banks and public-private partnerships.

However the implications of China's ongoing economic rebalancing will inevitably be felt by the region in the medium and long-run through trade (including commodity prices) and financial channels, albeit to a varied extent across countries, the report added.

The report, UN's flagship publication on expected trends in the global economy, comes just a day after the International Monetary Fund cut India's growth rate for the current fiscal year to 6.6 per cent from its previous estimate of 7.6 per cent due to the "temporary negative consumption shock" of demonetisation.

The World Bank too decelerated India's GDP growth for 2016-17 fiscal to 7 per cent from its previous estimate of 7.6 per cent citing the impact of demonetisation. The UN report does not make any mention of the withdrawal of the high-denomination 500 and 1000 currency notes by the Indian government nor its impact on the country's economic growth.

The report said India has positioned itself as the most dynamic emerging economy among the largest countries and is expected to remain the fastest growing on the back of robust private consumption and significant domestic reforms gradually being implemented by the government. It estimated that in the 2016 fiscal, India grew by 7.6 per cent.

In India, "investment demand is expected to slightly pick up, helped by monetary easing, government efforts towards infrastructure investments and public-private partnerships, and the implementation of domestic reforms such as the introduction of the Goods and Services Tax (GST) Bill," the report said.

It added that the GST reform constitutes a "major change" by establishing a new uniform tax rate.

The reform should promote investment in the medium term through lower transaction and logistic costs and efficiency gains. Its effective implementation requires adequate capacity building of the tax administration.

The report added that in India, in spite of a strong emphasis on rural areas and infrastructure investments on the expenditure side, fiscal policy has largely followed a cautious approach and the budget deficit is expected to further decline gradually.