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Two global research agencies pegged India’s annual growth to top seven per cent for calendar year 2015 onwards but warned that persistent problems such as bureaucratic inefficiencies and fiscal indiscipline could be the Achilles’ heel for the world’s fastest growing emerging economy.
Research firm Moody’s Analytics forecasts India’s 2015 gross domestic product (GDP) growth at 7.5 per cent for 2015, while the Economist Intelligence Unit (EIU) expects growth to average 7.1 per cent for 2015-2019.
“Our tracking model suggests that first quarter (January-March) GDP growth is tracking around 7.3 per cent, a slowdown from prior quarters. But we expect this softness will prove temporary with improving domestic demand to help India’s GDP grow 7.5 per cent for all of 2015,” said Moody’s Analytics’ Faraz Syed in a report.
Earlier this week, the International Monetary Fund projected India would overtake China as the fastest growing emerging economy in 2015-16 by clocking a growth rate of 7.5 per cent, helped by its recent policy initiatives, a pick-up in investments and lower oil prices. The World Bank, too, has a similar GDP growth forecast for India for the current financial year.
According to Moody’s Analytics, India’s economy is on a cyclical upswing and forward-looking indicators suggest domestic demand is gathering momentum.
“Low inflation has enabled the Reserve Bank of India to cut interest rates by 50 basis points in early 2015, easing pressure on the private sector,” the report said, adding, “lower rates as well as the government’s infrastructure and disinvestment programmes should provide a boost to domestic-oriented industries.”
The report also touched upon two issues which India had to get right — foreign investment and the push for disinvestment.
“The government wants more foreign businesses to invest in India, with a focus on public and private partnerships. Foreign investment in India has been weak because of significant red tape and taxes. The government is taking encouraging steps to reduce these burdensome regulations to entice more foreign investment,” it said.
“India’s state-owned companies are notoriously inefficient, with significant bureaucracy and endemic corruption. Asset sales can make companies more productive and should ease the supply bottlenecks choking the economy,” it noted.
For FY16, finance minister Arun Jaitley has budgeted the biggest ever disinvestment target of Rs 69,500 crore, including Rs 41,000 crore from minority stake sales in listed state-owned companies and Rs 28,500 crore from strategic sales in certain loss-making companies.
“If revenues fall short, we expect the government to cut expenditure to meet its 3.9 per cent deficit target for 2015-2016. Lower government spending is a downside risk to our forecast over the coming year,” the report said.
Separately, the EIU, which is the research-arm of the London-based publication, The Economist, credited strengthening of the economy to lower oil prices, saying this eased structural problems associated with high inflation.
“In its first full Budget, the government pledged more money for much-needed roads and railways and cut some red tape for entrepreneurs. It relaxed slightly some fiscal deficit targets and increased spending on welfare,” the EIU said in its global forecast report.
It said although all of these moves were positive, they were no more than incremental improvements. “Owing to a new government methodology for calculating GDP, we now expect growth of 7.1 per cent a year in 2015-19, a full percentage point higher than earlier,” said the EIU global forecast report.
On exchange rates, it said oil would continue to exert an influence over emerging-market currencies: those of large producers such as Russia have suffered significant depreciation, while those of importers such as India have shown much more resilience.
The report further noted: “On balance, 2015 should be a better year for global growth than 2014, owing largely to an acceleration in the US, better growth in the euro zone and an improvement in several emerging markets, notably India.”
