Despite the sprouting of green shoots, a robust recovery is still to fully take hold, says the Mid-Year Economic Analysis for the current year, tabled in Parliament by Union Finance Minister Arun Jaitley.
The Review projects 2014-15 growth will be 5.5 per cent. India faces challenges that are mostly domestic, says the Review.
India grew at sub-5 per cent for the last two years. Growth bounced to 5.7 per cent in the April-June quarter before slipping again to 5.3 per cent in the July-September quarter.
We see some signs of private consumption stirring, Chief Economic Advisor (CEA) Arvind Subramanian told reporters after the Review was tabled.
“What we are yet to see decisively is private investment picking up.”
The Review says that over-indebtedness in India’s corporate sector is amongst the highest in the world. This, it says, exerts a drag on future investment and spending. The public private partnership model has been less than successful, the Review says.
Stalled projects“First, the backlog of stalled projects needs to be cleared more expeditiously…But even if the backlog is cleared, there is going to be a flow challenge: attracting new private investment, especially in infrastructure.”
With private sector investments uncertain, Dr. Subramanian said, public investment itself could be an engine of growth over the medium-term but not in the short run as government’s revenues are likely to fall short of the budget’s ‘optimistic’ targets.
‘Major challenge’The Review said too that the Centre faces a ‘major challenge’ in achieving its fiscal deficit target of 4.1 per cent of GDP in the current year. Dr. Subramanian, however, said the government is committed to achieving it and is considering all measures including spending cuts.
On the rupee, Dr. Subramanian said that from the headlines, it seems that the rupee is weakening. It is weakening against the dollar, which, he clarified, is strengthening against the other major currencies. Against a broader basket of currencies, the rupee has become stronger by 10 per cent since September, 2013, he said.
The CEA also said that inflation has come down dramatically for four reasons — policy actions by the Reserve Bank and the government; declining agricultural prices; declining oil prices; and the economy growing slower than its potential.
