Top spot bagged by India in economists’ poll; only risk posed by oil

Image Representation/ Money Control

Reuters conducted a poll of economists yesterday concerning the economic growth of India. India will remain the fastest-growing economy due to the Government’s increased spending owing to the fast approaching general elections of 2019. However, rising oil prices will be the biggest risk to this growth.

The nosedive that the economy took after the ban on certain currency notes in 2016, followed by a seemingly hasty implementation of the Goods and Service Tax – or also known as GST – in July of last year has just started to recover. China, the world’s second-largest economy is expected to grow 6.6 percent this year, according to analysts in a recently conducted Reuters poll. However, it was noted with relief that India, who recently surpassed France to become the world’s sixth-largest economy, is expected to show a growth of 7.4 percent in March of this year, that is, the end of the 2019 fiscal year. According to the latest poll of nearly 70 economists conducted by Reuters, our $2 trillion economy will show an increased growth of 7.6 percent next year.

However, over 60 percent of 41 economists further said that the recent rise in oil prices was the biggest threat to the growth percent, as that would increase the likelihoodof more interest rate hikes by the Reserve Bank of India. The costs of the biggest items on India’s import list, diesel and petrol, have reached a record high which, at a time when the rupee is weakening and close to a record low, have become a major burden, thus posing risks to the polls.“We think that for every 10 dollar rise in oil prices, India growth declines by 30-40 basis points. This impacts growth by lowering consumption and raising input costs,” said Shashank Mendiratta, an economist at ANZ. Mr Samiran Chakraborty, senior economist at Citi added, “Relatively higher interest rates, high oil prices, uncertainties on the exchange rate, gradually building up political risks from the 2019 elections – are all headwinds that can slow down the growth momentum. Much will depend on the extent of (government) spending in the fiscal year 2019 and its multiplier effect on the rural economy.”

All in all, it seems that if we don’t manage to control the growing costs of oil, the effect will be seen in our economic growth.

*Neha Hardikar is a Research Intern at The Kootneeti