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UNCTAD projects 7-yr low growth rate of 6% for India

Sep '19
Pic: Shutterstock
Pic: Shutterstock
The United Nations Conference on Trade and Development (UNCTAD) has pegged India’s economic growth rate at a seven-year low of 6 per cent in calendar year (CY) 2019. It also highlighted the pitfalls of shadow banking in countries like China and India, citing example of Infrastructure Leasing & Financial Services (IL&FS). India’s economy grew by 7.4 per cent in CY18.

It grew below 6 per cent in 2012—called the policy paralysis year. The UN body also pointed towards challenges in meeting sustainable development goals (SDGs) at a time when private debts are rising globally.

“Growth projections for India have been marked down because of a sharp fall to 5.8 per cent in the first quarter of CY19 (relative to the corresponding quarter of the previous CY),” said UNCTAD in its trade and development report for 2019.

UNCTAD did not take into account an over 6-year low economic growth rate of 5 per cent that the country recorded during the second quarter of CY19.

Highlighting the risks of shadow banking, it said such institutions were fragile alternatives to public banks and development finance institutions, as the roles of the latter were reduced or done away with, as part of liberalisation.

Quoting a study, UNCTAD said an example of this development was IL&FS, which sourced capital using short-term instruments like commercial papers (CPs) to fund long-term investments. This maturity mismatch did not prove to be a problem initially, because of the presumption that being a government-sponsored entity, it enjoyed sovereign guarantee.

Owned one-third by state-owned financial entities, IL&FS was one of the largest issuers of CPs and enjoyed a triple-A credit rating.

However, by August 2018, it suffered a series of bond defaults by group entities, leading to a change in management, legal proceedings, and a painful restructuring of the company that is still in progress, UNCTAD said.

The report said SDG-related concerns were compounded by the dizzying rise in debt levels to a scale similar to those seen before the financial crisis.

“If the routine warnings from financial analysts and at global gatherings are to be believed, the addiction to debt is no longer sustainable," it said.

The report suggested that meeting financing demands of SDGs required rebuilding multilateralism around the idea of a ‘Global Green New Deal’, and forging, by implication, a different collective financial future.

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