PM's assertion follows GDP growth slowing to a 44-quarter low of 3.1% in Q4FY20 and rating downgrade by Moody's
Prime Minister Narendra Modi on Tuesday expressed his strong resolve to regain the economy’s growth momentum and asked for industry inputs for ‘more structural reforms’ his government is determined to undertake, in its effort to facilitate the country’s ‘growth-oriented, big take-off’. “For us the meaning of reforms is the boldness to take decisions and persist with them till the logical end,” Modi said, addressing the Confederation of Indian Industry’s 125th annual session, via video conference.
Listing out the steps taken by his governments over the years like the insolvency code, GST and bank mergers to bolster the economy’s productive capacity and the reform measures announced recently in the areas of agriculture produce marketing and coal mining, Modi said these long-pending reforms were among the ones the country appeared to have abandoned due to their apparent intractability. The prime minister asserted: “Yes, we will definitely get our growth back… India will get its growth back”.
Modi, accused by many analysts of being content with incrementalism in his approach to reforms during the tenure of his first government, has clearly changed tack. In the backdrop of the economic expansion rate having plunged to a 11-year low of 4.2% in 2019-20, and even the RBI prognosticating the growth to be in the negative territory in the current financial year, Modi clung tenaciously to his pledge to resort to “systematic, planned, inter-connected and integrated” reforms to find a way out of the current morass.
Land and labour market reforms are at the top of Corporate India’s wish-list, as it looks forward to an economic climate for them to resume long-dried-up investments.
Stating that “every sector has to be made future-ready”, Modi said his government was wedded to create an ‘encouraging eco-system’ for private firms and entrepreneurs, through continuous decisions and steps. “Corona may have slowed our speed (of growth) but India has now moved ahead from lockdown with the phase one of unlock. Unlock Phase-1 has reopened a large part of the economy,” he said. According to him, intent, inclusion, investment, infrastructure and innovation are crucial for India to revert back to a high-growth trajectory.
The prime minister’s comments come at a time when the country’s fiscal situation has deteriorated and the government is struggling to give support to the economy via own spending, while also incentivising the players in the economy through what it calls Atmanirbhar Bharat package consisting mainly of supply side steps.
Advocating the concept of Make-for-the-World, Modi said: “the world is looking for a trusted, reliable partner. India has that potential, strength and ability”. He noted that while battling corona at home, India helped over 150 countries with medical supplies.
To boost manufacturing and job creation, Modi said the government has identified priority sectors such as furniture, air conditioners, leather and footwear for special attention. India imports about 30% of its air-conditioner requirements while the country is not a leading player in world markets export of leather and footwear despite being the second largest producer.
Moody’s Investors Service on Monday trimmed India’s sovereign rating by a notch to the lowest investment grade of Baa-3 and retained the “negative” outlook, giving effect to earlier warnings of a downgrade if the country’s fiscal metrics “weaken materially” in the wake of the Covid-19 pandemic.
Since the agency had warned of downgrade on May 8, the Centre unveiled an economic stimulus package of close to Rs 21 lakh crore (barely 10% of which was additional budgetary cost) and the Centre’s fiscal deficit in FY20 was revealed to be 4.6% of GDP, the highest level since FY13. The fiscal deficits of both the Centre and states are expected to rise substantially in FY21, most likely to double-digit levels, given the economic slump and continued reliance on government spending to revive the economy and meet the extra spending obligations related to Covid-19.
Moody’s expects India’s real GDP growth to contract by 4% in FY21 due to the shock from the coronavirus pandemic and related lockdown measures, followed by 8.7% growth in the next fiscal and closer to 6% thereafter. It forecasts the country’s debt burden to rise to about 84% of GDP in FY21, indicating fiscal stress.
Crisil has said recently that Covid-19 pandemic would likely inflict a 10% permanent loss to real GDP, so a catch-up to the pre-crisis trend level of GDP won’t be possible over the next three fiscal years. After the global financial crisis, a sharp growth spurt helped catch up with the trend within two years.
GDP grew 8.2% on average in the two fiscals following the global financial crisis. Massive fiscal spending, monetary easing and swift global recovery played a role in a V-shaped recovery then. “To catch up would (now) require average GDP growth to surge to 11% over the next three fiscals, something that has never happened before,” Crisil wrote.