India has potential to take GDP to double digit: FM Arun Jaitley

30 May 2015 | Author: | No comments yet »

Arun Jaitley: India has potential to achieve double digit growth.

The downturn in the US economy was due in part to a swelling trade deficit caused by a strong dollar and plunging investment in oil exploration following the drop in fuel prices.In a reference to a recent report of the Central Statistics Office, he said that the nation’s manufacturing sector has posted a growth rate of over seven per cent growth, which to his mind was indicative of a rejuvenation of the industrial sector.Given the current economic scenario, India has the potential to achieve double digit growth and the union government is taking the requisite steps in this direction, union finance minister Arun Jaitley said on Saturday. Photo: AFP Gross domestic product shrank at a 0.7% annualized rate in the first quarter, revised from a previously reported 0.2% gain, according to commerce department figures issued on Friday in Washington.

Emphasizing that the NDA Government was both transparent and decisive in policies, Jaitley said relations between the Centre and the states have improved and the global image of India has brightened. He tells Indivjal Dhasmana all the factors on which the projection in Economic Survey 2014-15 is based are valid, with a possible exception of the monsoon. Edited excerpts: Growth in output of the agriculture and allied sectors was almost flat in 2014-15 and the sector contracted in the third and fourth quarters.

Jaitley also said that three legislations had been brought after the constitutional amendment on Goods and Services Tax (GST) to ensure that India achieves the goal of becoming one market with a uniform rate of tax. Accepting agriculture growth was not satisfactory, Jaitley sought to blame it on poor monsoon last year. “Had the monsoon been normal, the agriculture sector would have done better,” the minister said adding that taking leaf from MP’s achievements in the sector, more investment would be done for irrigation so that rain dependency is reduced. During his visit to Madhya Pradesh, Jaitley inaugurated the New Bank Note Paper Line unit of 6000 metric ton capacity at Security Paper Mill in Hoshangabad, and flagged off the first consignment of one thousand rupee bank notes made indigenously to the Currency Note Press Nasik.

The logic behind the 2015-16 forecast was growth would be greater in 2015-16 relative to 2014-15 by a margin greater than growth in 2014-15 over 2013-14. The encouraging part of the data is the growth in manufacturing to 7.1 percent from last year’s 5.3 percent which would also mean that we are creating jobs in our growth path,” said Mehrishi. Defending the land acquisition bill, the finance minister said the policy and intention of the government was in favour of development and the bill had provisions like rural infrastructure, housing for poor, national security and others that were pro-nation. The reasons for that increase were lower oil prices, the cumulative impact of reforms, easier monetary conditions, less fiscal consolidation and a monsoon that isn’t as bad. Economists are already having a hard time reconciling the headline numbers with dismal corporate earnings, weak industrial activity and an elusive recovery in bank credit.

On a question on Congress leader Rahul Gandhi’s offensive mode, Jaitley said that opposition has the right to raise issues, but the issues should be worth taking up and the debate should have a level of maturity. “Sub-standard comments are not expected from senior leaders,” he said. To put it differently, if growth could pick up in 2014-15 relative to 2013-14 by about 0.6 per cent (at basic prices) and 0.4 per cent (at market prices) despite a poor monsoon and fiscal consolidation, why would it not pick up by more for all the reasons suggested above? Last quarter’s contraction was smaller than the 2.1% fall at the start of 2014, when a prolonged patch of bitterly cold temperatures held back the economy. The various research results indicate first-quarter growth has underperformed the rest of the year by about 1.6 percentage points to 1.7 percentage points on average. The Bureau of Economic Analysis this month said it’ll make changes to try to minimize the issue, and take this into account when reporting annual benchmark revisions in July.

I believe there are two reasons why these data may be reasonably reliable: IIP indicators have suggested growth of three-four per cent on an annual basis in 2014-15. But these are volume indicators and at a time when input prices are declining substantially, recall that the level of wholesale prices has declined (negative inflation) six months in a row; volume indicators could be under-stating value-added growth. While poor weather and merchandise delays due to a labor dispute at West Coast ports were temporary restraints, the damage caused by the plunge in fuel prices and stronger dollar may be longer-lasting. A widening trade deficit subtracted 1.9 percentage points from growth, the most since 1985, compared with the previously estimated drag of 1.25 points, according to the commerce department’s data. While nominal credit growth has declined, real credit growth (growth adjusted for inflation) has been constant and, perhaps, even shown a slight uptick.

This is also true for broader measures of financing for corporates, including non-bank sources such as bonds, ECBs (external commercial borrowings) and NBFCs (non-banking financial companies). Revisions to incomes showed wages and salaries rose even more than last reported and the saving rate was the highest since the end of 2012, indicating households can unleash some pent-up demand. Still, it marked the weakest reading in six months. “The index is still quite high,” Richard Curtin, director of the Michigan Survey of Consumers, said on a conference call after the figures were released.

During the latter half of the month, “I expected confidence to inch upward and I still think that is likely over the months ahead.” The economy is poised to pick up this quarter. We have seen that the stalling rate of projects has declined but the question is whether new investments, both in the public and private sectors, are seeing a strong turnaround. A Bloomberg survey of economists in May predicted growth will accelerate to a 2.7% pace in April through June, with household consumption expanding 3.2%. In 2014-15, consumption growth has remained broadly stable — government consumption has declined, reflecting the sharp fiscal consolidation; exports have declined, reflecting the difficult international environment; and capital formation has increased.

Hopefully, the pick-up in investment will be sustained, especially if public projects are implemented quickly and stalled projects resolved and accelerated.

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