A good monsoon may help India’s economy maintain the pace of growth seen in recent quarters, but it faces several downside risks, including from the weakness in global economy, finance minister Arun Jaitley told a G20 meeting in Washington.
India’s economy grew by 7.6%, 7.7% and 7.3% in Q1, Q2 and Q3 of FY16, respectively. In its advance estimate, the Central Statistics Office has pegged FY16 growth at 7.6%. The government’s economic survey in February has predicted a broad range of 7-7.75% for FY17 GDP growth.
“The fading impact of lower input costs on value addition in manufacturing, persisting corporate sector stress and risk aversion in the banking system, and the weaker global growth and trade outlook pose as downside risks to India’s growth outlook,” Jaitley said on Wednesday at the G20 finance ministers and central bank governors’ meeting.
While the government was dealing with these challenges through various policy measures, he noted that a normal monsoon would aid growth. Signalling robust farm output and benign inflation, the India Meteorological Department has predicted above normal rainfall this year at 106% of the benchmark Long Period Average (LPA), with a model error of ±5%.
The IMF on Tuesday retained its growth forecasts for India at 7.5% in FY17 and FY18, but pared global growth by 0.2 percentage point to 3.2% in 2016 and by 0.1 percentage point to 3.5% in 2017 due to loss of growth momentum in the advanced economies and continuing headwinds for emerging countries.
The key downside risks which could derail the fragile global recovery were weak demand, tighter financial markets, softening trade and volatile capital flows. India has always emphasised the need for globally co-ordinated policy decisions to remedy the global economic turbulence, he said. At the moment, the recent use of negative interest rate policies has been identified as an area of concern by member countries.
Jaitley also appreciated the efforts being undertaken by the Chinese government in rebalancing their economy and in particular in reducing excess capacity in several sectors. This would create necessary space for manufacturing activity in other countries.
“Further, we feel that the efficacy of monetary policy instruments has reached its limits and that its pass through has not been seamless. The time is ripe for a re-evaluation of the fiscal policy space, with a greater focus placed on public investment,” Jaitley said.
Separately, Jaitley and his US counterpart treasury secretary Jacob J Lew met for the sixth annual US-India Economic and Financial Partnership on Wednesday to further strengthen economic ties between the two countries.
Among other issues, both countries agreed to increase cooperation in sharing of cross-border tax-information. The US promised to support India’s National Investment and Infrastructure Fund and smart city projects.