Geneva: India will see a gradual growth acceleration with its GDP expected to reach 5.9 percent this year and 6.3 percent in 2016, the UN said Monday while partly crediting the recovery to improved market sentiment after the new government took office and announced key reforms.
"India's economy expanded by an estimated 5.4 percent in 2014, an improvement from growth of 5 percent recorded in 2013, but still significantly below the 8 percent pace of the pre-crisis period," said the United Nations World Economic Situation and Prospects 2015 (WESP) report, launched today.
India is projected to see a gradual acceleration in growth, with GDP forecast expanding to 5.9 percent in 2015 and 6.3 percent in 2016, the report said.
"The recovery is partly the result of improved market sentiment after the new administration took office in the second quarter of 2014 and announced plans to reform the bureaucracy, labour laws and public subsidies," it said.
The WESP report is produced at the beginning of each year by the UN Department of Economic and Social Affairs, the UN Conference on Trade and Development (UNCTAD), the five UN regional commissions and the World Tourism Organisation (UNWTO).
Economic growth in South Asia is set to gradually pick up from an estimated 4.9 percent in 2014 to 5.4 percent in 2015 and 5.7 percent in 2016, the report said.
"While the recovery will be led by India, which accounts for about 70 percent of regional output, other economies such as Bangladesh and the Islamic Republic of Iran are also projected to see stronger growth in the forecast period," it said.
The global economy is expected to grow at 3.1 percent in 2015 and 3.3 percent in 2016, compared with an estimated growth of 2.6 percent in 2014.
The world imports of goods and services is projected to grow by 4.7 percent in 2015. The tepid growth of the world economy is a legacy of the global financial crisis of 2008 that continues to weigh on growth, while new challenges have emerged, including geopolitical conflicts such as in Ukraine and the Ebola epidemic, the report said.
"Among the developing countries, Asia will record the fastest growth which is based on domestic demand," said Alfredo Calcagno, the UNCTAD head of macro economic and development policies branch.
Despite a weak start in 2014, India's manufacturing sector registered employment gains in several sectors such as textiles, metals and information technology, which saw marked increases in employment levels through June 2014, the report said.
In general, the job market situation in South Asian countries appeared to be relatively stable in 2014, the report said. Unemployment rates remained significantly higher for women than for men including in India, Pakistan, Iran and Sri Lanka.
The share of vulnerable employment defined as unpaid family workers and own-account workers is a high 80 percent in India and 60 percent in Pakistan, which illustrates the challenges of generating quality employment in the region, it said.
On a global scale, the unemployment situation remains dire, the report warned.
"In the developed economies, unemployment figures remain elevated in several countries, especially in the euro area, while wage levels continue to be affected by the financial crisis, it said.
"In developing economies, despite slower employment growth, unemployment rates have remained relatively stable since 2013, partly owing to lower labour force growth, although informality and vulnerable employment are still highly prevalent," it added.
UNCTAD head of macro economic and development policies branch Calcagno said, "Schemes like MGNREGA have generated employment and have been good for the economy. Fiscal space of South Asia could be improved. For instance, only three per cent of the population of India pays income tax. Tax collection could be vastly improved."
The consumer inflation rate in India was below 7 percent year on year in the third quarter -- fall of 3.4 percent from the final quarter of 2013 -- thus lessening price pressures in Nepal, which is closely tied to India through the exchange-rate peg and strong trade flows.
India along with Bangladesh, Sri Lanka and Iran recorded an export growth in 2014 while on the import side most countries in South Asia, including India, benefited from a decline in fuel prices in 2014, it said.
"Moreover, some country-specific measures, such as an import duty on gold and silver in India, helped curb total import spending," it added.
World trade is estimated to have expanded by 3.4 percent in 2014, still well below pre-crisis trends.
Bangladesh, Nepal, Pakistan and Sri Lanka recorded a further increase in workers' remittances, which account for more than 5 percent of GDP in these economies.
India's current-account deficit sat at 0.2 percent in the first quarter of 2014 from a peak of 6.1 percent in the last quarter of 2012, the report noted.
Fiscal deficits generally trended down in 2014, but remained high at about 4 percent of GDP in India, 5 percent in Bangladesh and Sri Lanka, and 7 percent in Pakistan.
Average inflation in the region of South Asia is expected to moderate further to 7.8 percent in 2015 and 7.2 percent in 2016, as commodity prices will likely remain subdued and domestic demand picks up only gradually, the report said.