BREAKING NEWS

India should address structural issues to enhance economy

Wednesday، 06 November 2019 12:18 AM

After India’s growth slowed to 5% in the three months to June from a year ago, below the average 7-8% quarterly expansion seen in the past few years, multilateral institutions, rating firms and brokerages have lined up to downgrade growth estimates for Asia’s third-largest economy.
The World Bank slashed its growth forecast for India to 6% for the current fiscal from its April projection of 7.5%, citing a broad-based and severe cyclical slowdown. Growth is expected to gradually recover to 6.9% in 2020-21 and to 7.2% the following year, the Washington-based bank said in a report last month.
Moody’s Investors Service last month lowered its 2019-20 growth forecast for India to 5.8% from 6.2% earlier, saying the economy was experiencing a pronounced slowdown partly due to long-lasting factors. The rating agency’s projection is the most pessimistic so far.
The latest to join the league of pessimists is Fitch Ratings.
India’s growth could slip to 5.5% in the current financial year, falling below the Reserve Bank of India’s already pared-down forecast of 6.1%, Fitch has cautioned.
India’s industrial output contracted 1.1% in August, its worst show in 81 months, signalling a further deepening of the economic downturn. The dominant services industry contracted in September, with the index measuring activity in the sector dropping sharply to 48.7 in September, its lowest reading since February 2018. Business confidence sank to its lowest in 31 months, according to an IHS Markit survey of private sector companies.
Sales of cars plunged 33% in September from a year earlier, down for an 11th consecutive month, according to data released by the Society of Indian Automobile Manufacturers.
For almost half a decade, Indian Prime Minister Narendra Modi headed the fastest-growing major economy in the world. The slowest expansion in six years has put India behind China, Indonesia and a few others in the region.
The US-China trade war, amid growing fears of a US recession, has been hurting India’s exports as well.
The bigger problem, however, is the slide in domestic consumption, which makes up nearly 60% of India’s GDP. And private sector research suggests India is experiencing jobless growth and failing to create high-quality employment.
For sure, the government has taken a number of measures to bolster the economy. It plans to merge weak state-run banks with stronger ones, hoping that can spur lending. Foreign investment rules were eased and tax breaks given on vehicle purchases, while corporate tax rates were cut.
Most of these measures, however, are focused on improving the long-term potential of the economy, rather than providing a short-term boost.
Longer term, however, India’s $2.7bn economy is seen as having one of the highest growth rates in the world of any large emerging market. If Modi wants to make his pledge to turn the country into a $5tn economy by 2024, India needs its economy to expand at a 9-10% pace for a sustained period of time.
Most experts agree that the current slowdown is partly cyclical and structural, and India needs to address the structural issues and continue to enhance the depth of its financial markets through sustained reforms to facilitate access.

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