India has hit a “sweet spot” and is poised to become the world’s fastest growing major economy, the government signalled Friday as its annual report card said GDP growth in 2015-16 would be between 8.1% and 8.5% — a strong uptick from the 7.4% estimated for this year.
The report also forecast that inflation would decline and the government would stay within its fiscal deficit target, raising the scope for a growth-oriented budget with “big bang reforms” and low interest rates that could create jobs for teeming millions.
“India has reached a sweet spot... in which it could be launched on a double-digit medium-term growth trajectory that would allow the country to attain the fundamental objectives of ‘wiping every tear from every eye’,” the Economic Survey for 2014-15 tabled in Parliament said.
The pre-budget survey anchored by chief economic adviser Arvind Subramanian spoke of a “momentous opportunity” for the government to take reformist measures — implying elbow room for subsidy cuts and infrastructure spending, apart from legislative measures to boost investment.
It called for decisive steps for “ramping up investment, rationalising subsidies (and) creating a competitive, predictable and clean tax policy environment and accelerating disinvestment”.
Jobs remain a worry with 15 million expected to join the workforce every year over the next decade. “Given the fact that labour force growth (roughly 2.2-2.3%) exceeds employment growth (roughly 1.5%), the challenge of creating opportunities will remain significant,” the survey said.
The higher growth projection comes from a new-look statistical formula that broadens data-crunching to include farm-level livestock, smartphone sales and big infrastructure projects.
Revised statistics showed “real” or inflation-adjusted growth rate for October-December 2014 was at 7.5%, making India the fastest growing major economy, overtaking China’s 7.3% growth,. China is estimated to grow at 6.8% this year.
The survey said India was in a good position to gain from lower global oil prices, low inflation and a normal monsoon next year. Inflation is expected to stay between 5-5.5% while the government is expected to stay within its fiscal deficit target of 4.1% of the GDP this year and lower it to 3%in the medium-term.
Experts, however, saw room for caution in smaller details such as sagging tax collections that limit Centre’s scope to spend for growth.
The Centre wants to boost the share of manufacturing in GDP to 25% from 15% , roughly the same share of the economy as Brazil and Russia but less than China’s 32%. But in a diverse democracy of 1.2 billion, this is easier said than done. From energy shortages and land problems to ambiguous tax laws and byzantine labour rules, a barrage of hurdles have kept away large-scale private investments. But PM Narendra Modi’s initiatives to offer more resources to states may usher in a framework of cooperation that might aid thus-far wary investors.