India’s medium-term potential growth is likely to be above 7 per cent, backed by policy reforms, higher investments and stable global growth environment, says an UBS report.

According to the global financial services major, India ranks higher in medium-term growth potential compared to other emerging markets like Brazil (2.2–2.8 per cent), Russia (1.5–2.0 per cent), Indonesia (5.4–5.8 per cent) and China (5.5–6.0 per cent).

India needs to adopt reforms like stepping up infrastructure investment, labour market reforms, education & health reforms, easing of regulatory hurdles, and others to improve its potential growth outlook gradually over the medium term, the report said.

It however noted that considering the fiscal constraints and sluggish investment cycle, boosting India’s economic growth beyond 8 per cent without improving potential growth over the next two to three years will entail widening of macro stability risks and is “unsustainable”.

Slight improvement

India’s potential growth slowed from 7.6 per cent average estimated during 2003–08 to 6.7 per cent in 2014–15 as investments moderated and reform momentum weakened. “However, over the past four years, India’s potential growth has improved to slightly above the 7 per cent level in 2016–17 as per our estimates,” UBS said.

It further said the improvement in GDP growth was largely owing to economic and institutional reforms undertaken by the Prime Minister Narendra Modi government like implementation of GST, adoption of inflation targeting, new bankruptcy code, financial inclusion, improvement in ease of doing business, measures to curb ‘black money’, encouraging digitalisation, and the like.

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