India set to replace UK as 5th biggest economy

Wednesday 09th January 2019 01:35 EST

A report by Nomura Holdings Inc. stated that India's economy grew at a faster pace than most major nations in 2018, and is set to overtake the UK to become the world's fifth-biggest. The journey however, it said, won't be smooth. The outcome of general election due by May is a potential pitfall for the nation that is already affected by emerging market turmoil and a currency rout last year. The agency estimates global growth will ease to around 2.8 per cent in 2019 from 3.2 per cent in 2018, led by a slowdown in China, and a moderation in the US and euro-area toward long-term trends.

Nomura analysts said, “As cyclical impulses become less favourable, we expect exports, manufacturing and the investment cycle to weaken” in India. With demand slowing and oil prices easing, inflation is expected to average toward the RBI's medium-term target of 4 per cent in the first quarter of 2019. The six-member monetary policy committee may even be in a position to lower interest rates in the first half of the year, according to some analysts.

Data for the three months through September showed growth eased to 7.1 per cent from the 8-plus per cent pace seen in the previous quarter. Spending pressures intensified last month following disappointing results for PM Modi's Bharatiya Janata Party in state elections, and farm loan waivers announced by the opposition Congress party in three states it won from the BJP. It is said the government is studying three options, including a cash handout for farmers, to ease the distress for farmers and to shore up popular support ahead of elections. It's already slashed taxes on some goods and services and announced exemptions on pension withdrawals to appease voters.

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