India’s average economic growth of the past five years has been in excess of 7%. This has made India one of the fastest growing economies in the world. This growth, coming in the wake of an economic slowdown in many countries, several downside risks being faced by global investments, strong winds of trade protectionism and uncertainties over ‘Brexit’, is all the more commendable. The International Monetary Fund (IMF) in its latest report has lauded India’s economic progress and forecast a growth of 7.3% over the fiscal 2019-2020. It also projected a marginal increase in investments in India. The IMF primarily attributed such growth to the major reforms carried out by India over the last few years. While achieving this growth, India has ensured that inflation is under control and gross fiscal deficit remain within the targets set in the budget.
India has unleashed a slew of major economic reforms which have been appreciated by the trade and economic pundits, both within the country and at the international level. The IMF underlined the positive transformational effects of the Goods and Services Tax (GST), which was launched at the stroke of midnight on July 1, 2017. The GST regime, is not just based on the principles of fiscal prudence of achieving one nation one market, but also is one of the finest experiments in cooperative federalism that any large democracy has ever witnessed globally. In addition, the Insolvency and Bankruptcy Code (IBC) helped offer a one stop solution for resolving insolvencies and make the process of doing business less cumbersome.
Sectoral reforms, like the introduction of Single Window import clearances and ease in procuring permits also smoothened the business environment and has helped propel the economic growth of India. Over the past few years, there has been a great leap towards promoting digitalisation which includes use of digital platforms for procurements and payments and more importantly, transferring benefits digitally for a plethora of social assistance programmes. The IMF has lauded the digital transformation of India for reducing opportunities for discretion and fraud. Other international economic organisations such as the World Bank and the Asian Development Bank (ADB) have also praised India’s economic reforms and its strong fundamentals. The World Bank’s Ease of Doing Business indices saw India’s position move up from 130 in 2016 to 77 in 2018- a record jump of 53 notches as a result of multifaceted structural and fiscal reforms.
While the growth indicators definitely call for celebrations, the IMF however has a word of caution which India needs to be careful of, lest its growth momentum gets derailed. The growth prognosis for the global economy, including that of emerging markets, is pessimistic, and this can adversely impact India’s economy. India had a cushion in form of softening of commodity and crude prices-a comfort which might diminish, over the next couple of years. Thus, to sustain the growth momentum, the IMF has advised further fiscal consolidation and reduction of public debt. The IMF specifically pointed out at the need for reforms in the banking and labour sectors for enhancing the business climate and fostering faster and inclusive growth. The IMF has recommended drastic reduction of the non-performing assets of banks and increase in the level of capitalisation, especially of government owned banks. It has also pointed out at the need for curbing untargeted subsidies and for making revenue administration, including for the GST more efficient.
The silver lining is India’s commitment to move forward steadfastly on the reforms agenda by removing archaic laws and regulations which hinder business. India is also formulating new policies to attract investments and to promote export led growth. India shall continue to be one of the key drivers of the global economy, scripting inspiring tales of innovation and entrepreneurship.
Script: Satyajit Mohanty, IRS, Senior Economic Analyst