Connectivity & Partnership

India in “good position” to face fallout from possible trade tensions: UN economist

India is in a “good position” to deal with any fallout from global trade tensions and with right policies can reach an 8 percent-plus growth rate and hold it, according to a UN economist monitoring the country.
May 26, 2018
By Arul Louis
India is in a “good position” to deal with any fallout from global trade tensions and with right policies can reach an 8 percent-plus growth rate and hold it, according to a UN economist monitoring the country.
If global trade is impacted negatively due to trade tensions in the near future, “India is in a good position to navigate it,” Sebastian Vergara, the United Nations Economic Affairs Officer, told IANS in an interview.
Asked about the projection of a worst case scenario of global growth falling to 1.8 percent if the trade wars got out of control, he said, “India will, of course, be affected, but the effect will not be very strong, because of the productive structure of the of the Indian economy and because its driver of the growth nowadays is private consumption.”
Last week, Dawn Holland, the head of the UN Global Economic Monitoring Branch, warned that if the trade war initiated by President Donald Trump were to spiral out of control with retaliatory measures spreading to other sectors and to countries, the global economic growth next year could plunge to as low as 1.8 percent next year.
But she also told IANS, “India is slightly sheltered from the spillovers” because it is “not nearly as open to trade as many of the other East Asian economies are.”
However, the UN projection for global growth next year under current conditions is 3.2 percent.
Vergara said India's service sector exports – which includes back office operations software and technology services – are not vulnerable to the protectionist trends in the medium term.
India's services sector exports remain globally competitive and have a huge potential, he added.
“For India, despite the short-term tensions, the prospects in the medium term for the export of services are excellent, so India needs to take advantage of that competitiveness,” he said.
Vergara said the economic situation in India is improving, with, growth predicted to increase faster this year at 7.5 percent and 7.6 percent next year.
But that is below its potential.
“The Indian economy can grow at least at 8 percent, not just for a year or two, but for 15 years,” he said.
“India has to have that growth rate as its target and it can then really achieve a big jump in its development and become an engine of (global) economic growth in the medium term,” he added.
One of the key steps needed to boost India's growth is improving the productive capacities through innovation, he said.
The others were further reforms in the financial sector, promotion of foreign direct investments, and developing new policies and programmes for growth, he said.
He noted that investment has been subdued for a long time now, and new reforms and targeted measures have to be introduced to revive it.
“The government has already introduced some policies last year, for example the recapitalisation of public banks, and definitely they are going in the right direction.,” he said.
“And I would say that further reforms are needed in order to completely unleash the investment potential in the economy and the growth potential,” he added.

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