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India finds itself in "sweet spot" of lower deficits, more growth

HOPE
Source: The Daily Herald 28 Feb 2015 06:24 AM

NEW DELHI--India can increase investment to drive economic growth without borrowing more, a key government report said on Friday, in an indication that Finance Minister Arun Jaitley will stick to debt targets in his maiden full-year budget on Saturday.

The Economic Survey, the basis for Jaitley's budget for the fiscal year starting April 1, forecast growth of 8.1 percent to 8.5 percent under new calculations that make India the world's most dynamic big economy. The forecast marks an acceleration from growth of 7.4 percent in the current fiscal year.

"India has reached a sweet spot and ... there is a scope for Big Bang reforms now," the report said, adding the country was on course to hit double-digit growth rates.

Indian stocks rallied, with the benchmark Sensex index gaining 1.7 percent, on hopes that Jaitley would deliver a business-friendly budget. At first glance the growth outlook appears impressive. But it follows a big overhaul of India's economic data, which previously showed the economy struggling to recover from its longest growth slowdown in a generation.

Other indicators of India's economy are not as rosy as GDP data suggests. Earnings of the country's top 100 companies shrank by 6 percent in the last quarter, private investment and consumer demand are weak and merchandise exports are falling.

The author of the report, economic adviser Arvind Subramanian, even said he was "puzzled" by the new GDP figures and played down suggestions that India's $2 trillion economy was on a roll. "India's economy is still recovering, and not surging," Subramanian told a news conference.

Prime Minister Narendra Modi won a landslide general election victory last May, capitalising on dissatisfaction among Indians over their economic lot and promising 'better days' of more jobs, investment and growth. The report by Subramanian, a renowned development economist lured away from a Washington think tank by Modi, suggested the economy was now building momentum.

That, above all, reflects a near halving in international prices of oil, India's biggest import. As a result, the report predicts the current account deficit will be below 1 percent of GDP in 2015/16, a far cry from a figure of 4.7 percent in 2012/13 that preceded a currency crisis in India.

Jaitley's first interim budget last July was widely regarded as a flop and, hobbled by weak tax revenues, he has resorted to hurried sales of state assets late in the current fiscal year to make his budget numbers.


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