Modi government’s 5th year: GDP to grow at 7.5% but these are 2 biggest challenges

As the Narendra Modi-led NDA government has entered the fifth year the efforts to ensure a “well-oiled economy” could be tested multiple risks materialize, a report has said. Exogenous factors such as a runaway rise in global crude oil prices could be the biggest challenge for Prime Minister Narendra Modi in his fifth year. Adding to the woes is the rupee’s depreciation versus the greenback, which increases the cost of imports, particularly of oil, a report by CRISIL said.

“Four years of the Modi government as a mixed bag of good luck on oil and monsoon, a raft of reforms and repair, disruptions, and slowing growth,” the report said. A back-of-the-envelope estimate shows that every $10 per barrel increase in crude oil price can shore up India’s fiscal deficit by 8 basis points as a percentage of GDP and similarly the current account deficit by 40 bps, the report added.

All this comes as rural distress is mounting, manufacturing is smarting, and the business sentiment needle hasn’t moved in a material way despite better global competitiveness and ease of doing business rankings, and better macros and reforms. What’s more is that non-performing assets in banking have surged.

CRISIL expects India’s GDP to grow at 7.5% in the fifth year of the Narendra Modi government. However, it also said that there is very little fiscal and monetary room for “countercyclical” policies to boost growth and these would not be very effective either as most of the problems plaguing the economy – be it in manufacturing, exports, the Narendra Modi government completed four years on May 26. Giving the report card of the four years of the government, Finance Minister Arun Jaitley said that India has transformed from being a “fragile five” to a “bright spot” under Narendra Modi’s leadership.

CRISIL expects India’s GDP to grow at 7.5% in the fifth year of the Narendra Modi government. However, it also said that there is very little fiscal and monetary room for “countercyclical” policies to boost growth and these would not be very effective either as most of the problems plaguing the economy – be it in manufacturing, exports, or agriculture/rural – are structural in nature and can only be addressed through reforms.

The Narendra Modi government completed four years on May 26. Giving the report card of the four years of the government, Finance Minister Arun Jaitley said that India has transformed from being a “fragile five” to a “bright spot” under Narendra Modi’s leadership.