The Finance Ministry on Tuesday defended the state of the economy with Finance Minister Arun Jaitley saying it was on strong macroeconomic fundamentals, while Economic Affairs Secretary Subhash Garg highlighted key data indicators such as low inflation, comfortable current account and fiscal deficits, an unprecedented disinvestment target and a positive outlook for GDP growth in the coming quarters.
The Union government has been facing criticism over the performance of the economy, particularly after demonetisation and the implementation of the GST.
“The economy is on strong macroeconomic fundamentals,” Mr. Jaitley said at a press conference to announce fresh investment decisions taken by the government on Tuesday.
“And where we have identified the need for a boost, in relation to that we have taken some decisions.”
“India grew at a very strong pace of 7.5% per year in the three years of 2014-17 with growth exceeding 8% in 2015-16,” Mr. Garg said.
Transitional effect
“There was a temporary slippage in growth in the last two quarters, thanks to the transitional effect of demonetisation and GST. That effect is now over, with all indicators — IIP, core sector, automobile, consumer spending, etc. — pointing out a strong growth pick-up. There is expectation of very good growth from second quarter of current year itself,” he said.
“The inflation numbers from 2014 onwards have come down,” Mr. Garg said. “The numbers have been below 5% since then and this year we don’t expect it to cross 4% and maintain an average of 3.5%.”
Mr. Garg also said the current account deficit (CAD) was expected to be below 2% this financial year, which was in line with the globally accepted safe level. Last year, he said, the CAD was 0.7%.
“This government took over when the fiscal deficit was in excess of 4.5%,” Mr. Garg said.
“We have consistently been bringing it down and the commitment is to maintain the glide path. The final decision on this will be taken in December.”
“This year, we have already collected ₹30,000 crore from disinvestment and we will meet and maybe even exceed the ₹72,000 crore target for the year,” Mr. Garg said.
“The gross FDI flows to India in 2016-17 amounted to $60.2 billion, as compared to $55.6 billion in 2015-16 and $45.1 billion in 2014-15, indicating the improved global confidence on the Indian economy,” Mr. Garg said.
“The impact of demonetisation and GST are still being felt,” Rajat Kathuria, Director of the Indian Council for Research on International Economic Relations, told The Hindu .
Trial and error system
“In GST, there is going to be a trial and error system, and so the effect will be felt for the short and medium term. Unless investment picks up, the growth outlook will remain just optimism. Good news is that the world economy is picking up. The good news in India is that IIP has also picked up.” Mr. Garg also highlighted the reforms taken by the government to boost the economy, including the Goods and Services Tax, the Insolvency and Bankruptcy Code, demonetisation, UDAY scheme, and reforms in the housing and real estate sector.
