Insolvency Code has redefined creditor-lender relationship. The need now is to expedite the process. The government's ability to spend on infrastructure has improved due to increase in assessee base as well as tax collections— Arun Jaitley, Finance Minister
Notwithstanding external headwinds such as high crude oil prices and a spillover impact of a global trade war, the government is looking at achieving economic growth higher than predicted by many in the current financial year and India could become the fifth largest economy (surpassing the UK) next year, finance minister Arun Jaitley said on Monday.
India’s GDP grew 6.7% in 2017-18, down from 7.1% in 2016-17, as private investments and consumption remained subdued. The economy, however, grew at a seven-quarter high of 7.7% in the final quarter of last fiscal, helped by higher government spending and investment. India last fiscal became the world’s sixth largest economy, surpassing France, according to a World Bank report.
Addressing from here the annual general meeting of the Indian Banks’ Association held in Mumbai via video conference, the minister said “sacrificing the fundamentals for temporary spurt in growth is not desirable”, emphasising on “growth with fiscal prudence”.
He said the ability of the government to spend on infrastructure has improved, due to increase in the assessee base as well as tax collections.
The finance minister, who recently resumed office after a three-month break (he had undergone a kidney transplant in May) highlighted the reasonable credit growth in recent months as a sign of heightened economic activity. Non-food credit growth went up to 11.8% in Q1FY19 from 6.8% in Q1 FY18. “When there is 31% or 28% growth in credit offtake, history will record it as indiscriminate lending, and its impact will be recorded in future,” Jaitley said, referring to the credit boom periods of UPA between 2004 and 2013. Non-food credit growth went up to 11.8% in Q1FY19 from 6.8% in Q1 FY18.
Given the kind of economic activity happening in India, he said that the role of the banking industry “is going to be vital in strengthening the economy itself”. He said that the sector should do this by upholding professionalism, credibility and expansion. He said that the industry needs to use the occasion of AGMs to introspect and prepare a blueprint for the long term.
Jaitley is back in the saddle when the economy is facing renewed challenges, despite its inherent strength to absorb shocks. A spurt in the trade deficit and the depreciation of the rupee that would inflate costs of imports and could worsen the current account deficit (CAD) in the current fiscal. Forecasts of CAD vary between 2.5% and 2.7% for the current fiscal, up from 1.9% a year earlier.
Although the Centre has reiterated its commitment to the fiscal consolidation path and meeting this year’s deficit target of 3.3% of GDP (last year it allowed a slippage from the original target of 3.2% and settled for a higher 3.5%), it seems a daunting challenge. While the Centre’s goods and services tax (GST) revenues have been below the target by a quarter and disinvestment receipts have been sluggish, the continued reliance on public expenditure to spur growth and a likely uptick in welfare spending around the 2019 general elections are threatening to upset the budget numbers.
The International Monetary Fund last month trimmed India’s growth projection to 7.3% for 2018-19 and 7.5% for 2019-20, reducing its earlier forecasts for these years by margins of 0.1% and 0.3% point, respectively.