A bleak global economic outlook and the resultant export contraction are challenges to the Indian economy but good monsoon rains that are forecast this year would provide an impetus, Finance Minister Arun Jaitley said.
Mr. Jaitley’s comments at the G20 Finance Ministers and Central Bank governors’ meeting at the International Monetary Fund, detailed the policy initiatives that the government was taking to catalise growth.
The Finance Minister also argued for re-examining existing fiscal policy approaches and increasing public investment to boost growth.
Indian economy has been the fastest growing among major economies for the past three quarters, the Minister said. He outlined the policy initiatives that the government was taking to capitalise on growth and said the Centre was re-examining existing fiscal policy approaches and increasing public investment.
“We expect this momentum to continue, assuming a normal monsoon. That being said, the fading impact of lower input costs on value addition in manufacturing, persisting corporate sector stress and risk aversion in the banking system, and the weaker global growth and trade outlook pose downside risks to India’s growth outlook. We are dealing with these challenges through various policy measures.”
Mr. Jaitley, during his speeches and interactions in the U.S capital over the last two days, said India was doing better than many other countries, but admitted that more needed to be done.
Reserve Bank of India Governor Raghuram Rajan, was more forthright.
“I think we have still to get to a place where we feel satisfied. We have this saying — 'In the land of the blind, the one-eyed man is king'. We are a little bit that way,” Mr. Rajan said about the idea of India being a 'bright spot' in a world gripped by economic anxieties. “We feel things are turning to the point where we could achieve what we believe is our medium-run growth potential. Because, things are falling into place. Investment is starting to pick up strongly. We have a fair degree of macro-stability. Of course, not immune to every shock, but immune to a fair number of shocks,” Mr. Rajan said in an interview to MarketWatch, which is part of the The Wall Street Digital Network. Mr. Rajan said structural reforms were underway and lower rate of inflation has allowed space for reducing interest rates.
If monsoons turn out to be good as predicted further cuts in interest rate could be expected, Mr. Rajan said.
Interacting with reporters later, Mr Jaitley noted that the major chunk of the loan defaults in India was due to sectoral downturns, though in some cases it could be due to bad business practices or wilful fraud. “NPAs that are a result of sectorial downturn will revive once the economy begins to do better,” the minister said adding that the government had no view or influence on how banks settle the loans with the defaulters.
