Why PM Narendra Modi must be cautious in selling India’s ‘fastest’ GDP growth in US

By: | Updated: September 17, 2015 8:46 AM

The OECD and IMF estimates about India becoming the fastest-growing economy in the world is fine, but in the absence of any real improvement on the ground, it is better to exercise caution in projecting this GDP growth as a big achievement.

OROP Narendra ModiThese projections will surely be utilised by the NDA government, especially Prime Minister Narendra Modi who is visiting the US later this month, in strengthening its pitch for foreign investment in the country. (PTI)

income tax refundsThe OECD and IMF estimates about India becoming the fastest-growing economy in the world is fine, but in the absence of any real improvement on the ground, it is better to exercise caution in projecting this GDP growth as a big achievement.

Prime Minister Narendra Modi and Finance Minister Arun Jaitley must be pleased at the projection by the OECD’s latest Interim Economic Outlook that India is expected to be the fastest-growing major economy over the next two years.

This is not the first time that an international agency has said this. The IMF has been predicting it for quite some time, and it is not surprising, what with the Chinese economy being under severe pressure. These projections will surely be utilised by the NDA government, especially Prime Minister Narendra Modi who is visiting the US later this month, in strengthening its pitch for foreign investment in the country.

The OECD report could be seen as a solace, because India’s GDP growth slowed to 7% during the April-June quarter from 7.5% in the January-March quarter, but the finance minister has already expressed optimism about improvement in growth in the coming quarters. The agency has projected that China is expected to grow by 6.7% in 2015 and 6.5% in 2016, while India will grow by 7.2% in 2015 and 7.3% in 2016. Another major emerging country, Brazil’s economy is expected to shrink by 2.8% in 2015 and then by an additional 0.7% rate in 2016.

Among the top developed nations, the US is expected to grow by 2.4% this year and by 2.6% in 2016, the UK is estimated to grow at 2.4% in 2015 and 2.3% in 2016, Canada’s growth is projected at 1.1% this year and 2.1% in 2016, and Japan is slated to grow by 0.6% in 2015 and 1.2% in 2016. Growth in the euro area, too, is improving, but not as fast as expected.

While India has reasons to be happy over its growth projections as compared to the other countries, the government must keep in mind the ground realities – the economy is yet to show signs of a pick-up and the growth figures, which are looking better because of the new GDP series, will not look as impressive as the new method settles.

Then, the OECD report has flagged another issue that is a concern area for India: “The US Federal Reserve will soon need to begin to raise its policy rate at a gradual pace, given the solid growth of the US economy and concerns over asset prices. The timing of the first rate rise will make little difference to the outcome, but the pace of increase does matter”.

So, PM Narendra Modi and FM Arun Jaitley would do well by exercising caution while talking about India’s growth prospects and not over-project the GDP growth before any real signs of improvement in the economy are visible.

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