Lack of reform could kill India’s 10% growth dream

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Updated: July 30, 2015 1:27:51 PM

A sustained 8-10% GDP growth will remain a mirage if the NDA government fails to break Parliamentary logjam over reform Bills.

indian economyThe Moody’s Analytics India Outlook report has pointed out that a lack of reforms could derail medium‐to long‐term growth prospects . (AP)

Santosh-TiwariFinance Minister Arun Jaitley’s optimism about India attaining a sustained 8-10% GDP growth rate in the near future may remain a dream if the Parliamentary logjam over reform legislations continues.

The Moody’s Analytics India Outlook report has rightly pointed out: “A lack of reforms could derail medium‐ to long‐term growth prospects. The economy will likely expand 7.6% in 2015 thanks to lower interest rates. Private investment remains elusive, and partial indicators point to a negative output gap. Better rains, lower commodity prices, and strong external balances increase the odds of further interest rate cuts.”

Out of the three main reform areas that the NDA government is banking upon for pushing growth — Land Acquisition law amendments to dilute consent and social impact assessment clauses of the UPA’s 2013 Act, implementation of Goods and Services Tax (GST) and labour law changes — only GST seems to be feasible, and that too with flaws like 1% additional tax on interstate trade to compensate manufacturing states and exemptions.

The cabinet has approved the GST Bill but even if the government succeeds in getting it cleared by Parliament in the current session, it is not expected to yield the desired results.

But, the biggest problem facing the government is lack of reform would ensure that the investors keep India low on their priority list.

That the foreign investors may not be keen on looking at India is clear from the Moody’s Analytics observation that, “India’s political infighting is denting business confidence…..Key reforms such as the land acquisition bill, flexible labour laws, and the goods and services tax have failed to pass Parliament. And given the political seesaw, these are unlikely to be delivered until later this year or even 2016”.

This is worrying as in countries like Philippines, Malaysia and Poland, among others, reforms have improved the growth prospects whereas India remains a country where the government is over-promising but failing to deliver.

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