Projecting India’s growth to remain stable at 7.1 per cent in 2017 before edging up to 7.5 per cent in 2018, the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), in its latest report has said that the country is facing a key downside risk related to the concentration of bad loans in public sector banks (PSUs) and noted the need of bank recapitalization in a view of high gross non-performing assets ratio in PSUs which had reached to almost 12 per cent in 2016.
However the report expects growth in GDP due to higher private & public consumption and increased infrastructure spending, it has stated that if the US policies take a very severe protectionist turn and the trend spreads, the India’s growth could be affected by as much as 1.2 per cent in the coming years. It added that while the impact of demonetization on the economy is expected to be transient, a slower-than-expected recovery would particularly diminish the outlook for cash-intensive sectors and supply chains for agricultural products. The report has also projected inflation rate at 5.3-5.5 per cent in 2017 and 2018, which are above the official target of 4.5-5 per cent.
The report also said that the unexpected withdrawal of the two largest denomination currency notes in November 2016 helped to expand banking sector liquidity and added that the 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 Country’s growth in the medium-term.