India’s economic growth is evaluated with frequency, fervency, and feverish pitch. Many of these evaluations differ in opinion and outlook.
Earlier this month, the Reserve Bank of India’s Monetary Policy Committee cut its Gross Domestic Product (GDP) growth forecast for fiscal year 2020 to 7 per cent, from an earlier projection of 7.2 per cent. The RBI also delivered a third consecutive rate cut in five months to boost credit growth and revive sluggish economic activity.
A day later, brokerage firm Goldman Sachs said GDP growth will accelerate to 7.2 per cent. “The acceleration is based on our assumption of lower oil prices, an increase in confidence once the new government and the cabinet take office, and some easing of infrastructure bottlenecks.”
Last month, the United Nations report, World Economic Situation and Prospects (WESP) 2019 Mid-year Update, said India’s economy will grow at 7 per cent in 2019 and 7.1 percent in 2020 on the back of strong domestic consumption and investment. Both figures reflect a downward revision (7.6 and 7.4 per cent respectively) from the January edition.
Confusion – and some controversy – also reigns over India’s GDP after Arvind Subramanian, former Chief Economic Adviser, recently wrote a research paper published by Harvard University. He says India’s growth in the period 2011-12 to 2016-17 is most likely to have been over-estimated, because of a change in methodology for calculation.
Two facts supersede the decimal points of differing reports and methodologies: the Indian economy generates two-thirds of the regional output in South Asia, and despite revisions, remains one of the fastest growing major economies in the world.
With a new lease for the old government and a new finance minister at the helm, there is much discussion and debate on what will propel India’s economic growth in the next few months – and next five years. Most pundits are calling for greater private sector involvement, new investments, less regulations, and a lot more reform.
Dawn Holland, Chief of Global Economic Monitoring at the UN Department of Economic and Social Affairs, says India should focus on increasing private sector involvement in investment. Speaking at the UN Headquarters during the release of the WESP update, she said, “The one area I think India should be focusing on is increasing the private sector involvement in investment, and facilitating access to finance for the private sector and small and medium size (SME) firms in particular, which is a barrier to faster growth in India.”
Dubai-based Dr Sharad Nair of Apex Advisers DMCC opines that SMEs will become a major driving force in maintaining consistent GDP growth and tackling large-scale employment generation alongside.
“The government should set up exclusive infrastructure in the form of collective marketing platforms, logistics and e-commerce that will enable them to take their products pan-India.
“I look forward to an influx of mature entrepreneurs in their 30s and 40s who, when compared to the staple of fresh IIM/IIT graduates, will bring both experience and wisdom to the scene.”
Private sector power
Dr Dhananjay Datar, Managing Director, Al Adil Group has a succinct statement: “The Indian economy is simply in consolidation phase.
Though statistics indicate that the economy is slowing, we are sure the government will take required measures to enhance growth in ensuing years, alongside private sector participation.”
Anis Chakravarty, partner and lead economist and economist Umang Aggarwal of Deloitte India emphasise that the economy needs increased private investment and fiscal prudence, in the April issue of Deloitte Insights. “Overall, the government could do well to carefully manage its public finances and shift focus to projects that can foster private investment.”
“Access to a well-regulated private capital market ‘beyond bankers’ is a crucial development,” says Dr Nair who has led investments of over $20 million into a dozen start-ups in multiple sectors, in India and the UAE. “Mutual funds flush with funds have exhausted their appetite for large, listed securities. They are waiting for a suitable platform in SMEs and start-ups, which will yield healthy and consistent returns.”
Sector specific support
Healthcare, a key index in defining economic growth is also propelling India forward. Dr Azad Moopen, Founding Chairman and Managing Director of Aster DM Healthcare, says he expects the government to focus on improving and augmenting infrastructural aspects, and simultaneously tweak the cost aspect so that healthcare access is more affordable. “We need to stem and arrest rising healthcare costs to ensure that India achieves major economic power status in the next five years.”
Dr Datar speaks of the highly dynamic food retail sector: “Retail consumption in India is growing at a pace faster than any other major global economy, but this throws up diverse challenges. The new government has to address a host of issues including infrastructure improvement, supportive regulation and new incentives, which will foster bullish growth of the industry — and the economy.”
Regulations and reform
The International Monetary Fund (IMF) says in its World Economic Outlook that reform is key to bringing down India’s elevated public debt and raising its growth levels.
“Continued implementation of structural and financial sector reforms with efforts to reduce public debt remain essential to secure the economy’s growth prospects.” The report also emphasises better governance and regulations in public sector banks to incentivise job creation, and land reform to expedite infrastructure development.
Arvind Subramanian, meanwhile, does not mince words when urging the government to act swiftly and prevent slowdown. “Going forward, there must be reform urgency stemming from the new knowledge that growth has been tepid, not torrid.”