Indian economic growth gathers steam

For the year to March 2016, the World Bank has estimated India’s economic growth rate at 7.5 per cent.

India's ability to touch or cross 8 per cent growth in the next year is reasonably plausible, according to finance minister Arun Jaitley. Xaume Olleros / Bloomberg
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NEW DELHI // The finance minister Arun Jaitley says India’s US$2.1 trillion economy could surpass a growth rate of 8 per cent in the next fiscal year, beginning April 2016, on the back of an anticipated stellar performance of services and manufacturing sectors and investments in infrastructure.

In an interview with The National shortly before the start of his three-day official visit to the UAE, Mr Jaitley said in the current fiscal year, the annual GDP growth rate of Asia's third-largest economy is estimated at about 7.5 per cent, higher than the 7.3 per cent growth it achieved last year.

“We are certainly growing in the range of 7 to 8 per cent. This is in the backdrop of a global slowdown, modest private sector investment and less than normal monsoon for two consecutive years. We will have to watch the situation next year. If any of these three factors improve, our ability to touch or cross 8 per cent growth in the next year is reasonably plausible,” said Mr Jaitley.

“Our services sector is growing quite fast, the manufacturing has improved, agriculture is still rain-dependent, but with the kind of policy reforms and infrastructure investment we are making, I am sure this year’s growth is going to be higher than last year and next year’s will be higher than this year.”

For the year to March 2016, the World Bank has estimated India’s economic growth rate at 7.5 per cent.

“Five more months are left [in the current fiscal year] and we seem to be doing reasonably well in terms of revenue collections,” the minister said. However, he admitted that a disappointing monsoon this year could effect rural incomes.

“When the monsoon is low and private-sector investment is still picking up, it’s the public- sector investment and foreign direct investment that has to come in front. We have enough food grains. So I don’t see a pressure on either quantity or the prices.” said Mr Jaitley.

He added: “I think, as far as the economy is concerned, it has become more stable. Our policy has become predictable, policy decisions are being taken much faster, they are not being deterred by politics, there’s a lot more public spending, there’s lot more opening out, there’s a lot more reform, there’s a lot more tax rationalisation and we are still in the middle of it.”

Mr Jaitley said the pace of reforms in India has gathered steam since the Narendra Modi-led National Democratic Alliance (NDA) government was voted into power in May 2014.

He said that the defeat of the ruling NDA in the recently-concluded state elections in Bihar would not slow down the government reforms.

“I think the Indian politics and reform can even operate independent of each other. India wants to grow, and to grow you need the right policies. Only if you grow, you win elections. The pace [of reforms] has picked up in the last one-and-half years and it will continue.”

Last week, the federal government announced foreign direct investment (FDI) reforms in as many as 15 sectors. The Indian government is expecting to better the record of $46 billion – set in 2012 – for the highest FDI it has received in a single financial year.

“I won’t make any predictions. We are gearing up our policy to make sure the improvements do take place to achieve that,” Mr Jaitley said, adding that the results depended on the credibility of the Indian economy and “if India’s economy is growing faster than any other economy in the world, then, certainly, the investors are also looking towards being a part of that growth story”.

On the stalled Land Bill, he said the states are trying to improve upon their own legislation. “We will certainly grant approval to whichever state wants to improve on it. That’s the alternative route.”

Mr Jaitley said the Indian economy has the potential to grow at 9 per cent a year.

“It is only the adversities which hold us back. Adverse circumstances may include global slowdown, investment slowdown, slow demand or even modest rainfall.

“Now if any of these factors improve, the ability to add to the growth rate is there.”

Separately, Mr Jaitley said China’s economic slowdown has had only marginal effect because “India is not a part of the Chinese production or distribution chain”.

“Secondly, the factors which have held back the global growth such as low oil and commodity prices are not necessarily adverse to India. They help us because we are net buyers,” he said.

Mr Jaitley said the possible increase in the benchmark lending rate by the US Federal Reserve would also have some transient effect on India, but effectively, India had a significant amount of resilience and “after some transient effect, we will be able to normalise and get back”.

The minister does not foresee a “great fall” in the rupee post-Fed action on interest rates, and he believes that the Reserve Bank of India is competent enough to control the currency’s volatility.

“I think the rupee must find its real value,” said Mr Jaitley. Asked if he thought the rupee is overvalued at current levels, he said: “I think the rupee is range- bound and that’s a fair range.”

Mr Jaitley stated that the government would miss its privatisation target this year.

“We had planned [to raise] a significant amount of over 600 billion rupees [Dh33.33bn; through the sale of state assets], but because the markets are currently volatile and metal stocks are running a little low, that programme is currently behind target. We are using other options for compensating revenue such as higher indirect tax collections.”

Asked about the government’s revised targets for inflation, current account deficit and fiscal deficit in view of the global oil slump in oil prices, he said: “We have a reasonably achievable situation, because the oil prices, the commodity prices and metal prices are still low. Therefore, for India to maintain modest levels of inflation and even more modest levels of current account deficit are reasonably possible. The last one year has adequately shown that.”

In the last budget, India’s fiscal deficit was 3.9 per cent of GDP in 2015-16 and the current account deficit below 1.3 per cent of GDP. As of August, the annualised inflation rate in India is 3.78 per cent.

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