The newly-implemented Goods and Services Tax will pull down the informal sector in India, which was already vastly affected by the government’s demonetisation drive, a United Nations report said. The UN Conference on Trade and Development report, released on Thursday, said that the two initiatives had also lowered India’s growth projection from 7% in 2016 to 6.7% in 2017.
“Growth in the world’s two most populous economies − China and India − remains
relatively buoyant,” said the Trade and Development Report 2017. “But the pace is slower than before the crisis and faces some serious downside risks.”
India’s GDP growth slowed to 5.7% in the first quarter of 2017 from 7.9% in the corresponding period last year. Finance Minister Arun Jaitley had said this was a cause for concern.
The UN report said India’s growth performance depended on reforms to its banking sector, but highlighted that it was “burdened with large volumes of stressed and non-performing assets”. Banks in the public sector unit had written off a record Rs 81,683 crore in bad loans in 2016-’17. “Since debt-financed private investment and consumption is an important driver of growth in India, it is more than likely that easing the credit boom would slow GDP growth, as well,” the report said.
At the current levels of growth in both China and India, the UN believes that the countries are unlikely to serve as “growth polls” for the global economy in the near future. The UN body kept growth projection for China unchanged at 6.7%, the same as in 2016.
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