Monday / October 15.
HomeIndia TakesCHINA SLOWDOWN OFFERS OPPORTUNITY

CHINA SLOWDOWN OFFERS OPPORTUNITY

INDIA IN SWEET SPOT TO BALANCE THE ACT

 

By K R Sudhaman

 

India is in a sweet spot as global economy is not looking good in the face of market turmoil in China. A global recession triggered by poor showing of European economy had hit badly the export led growth model of China, whose economy grew by 6.9 per cent in 2015, the slowest in two decades. Following this slowdown, high commodity prices had started correcting exerting more pressure on China down turn. The massive over investment in China in steel, cement, shipbuilding, petrochemicals, real estate and other infrastructure sectors began to burst. This volatility in equity and commodity markets did not augur well for the global and Chinese economies. Global economy may not be in a crisis as in 2008 during the financial meltdown but it is certainly not out of the woods and outlook for global economy is certainly bearish in 2016.

 

In such a scenario, there will certainly be some ripple effect on India but there will be no menace as is happening elsewhere in the world. This is because India is now a reviving economy with strong fundamentals. The current account deficit is below one per cent of GDP, Inflation is down though there is some increase in food inflation lately and foreign exchange reserved comfortable and swelling. The fiscal deficit has been reined in and is within manageable limit of less than four per cent and is falling further partly because sharp fall in commodity prices particularly oil, which has pushed down drastically subsidy bill. It has also helped in increasing indirect tax revenue because increase in excise duty to pre-crisis level.

 

This is the time for India to get its act together and Finance Minister Arun Jaitley rightly put it at the World Economic Forum summit at Davos. Exuding confidence on the Indian Economy, Jaitley said India would utilise the headroom available to get some additional growth engines going through efforts to revive private investments.

 

Several speakers at the ongoing Davos Summit in stressing that India will be the next growth engine of the World with the picture in China and Europe gloomy. It is not very good in US as well. Reserve Bank of India Governor Raghuram Rajan has aptly summed up India’s comfortable situation. He termed India as a recovering economy, despite weak global markets and two consecutive years of poor rain. As these things turn, growth will get stronger, he said. When the growth rate is falling elsewhere in the World, India’s growth is increasing to become the fastest growing economy in the world. Of course India is growing to its potential as yet at 9-10 per cent annually. For that to happen, India needs to push investments in infrastructure and kick-start private investment to get the economy firing all fronts. The fall in commodity prices will help in pushing investments in infrastructure as input costs in steel, cement and the like will come down substantially.

 

The General Budget to be presented to Parliament by Jaitley on February 29 provides an opportunity to push reforms so as to get its house to convert the global challenges to opportunity to take the Indian Economy to new high. This is a golden opportunity for India to become an economic power. We had similar opportunity in 2004-05 and we missed the bus. Hope we do not miss the bus this time. If we get it right this time the 21st century would belong to India, which is not only in sweet spot but also it has the demographic dividend with 65 per cent of the 1.25 billion population below the age of 35 years. The country is geared to cash in on this once in a lifetime opportunity. The general budget, particularly game changing tax reforms like GST, bankruptcy law, make in India hold the key.

 

So far India has not been able to grow to its potential barring 2004-08 when the economy clocked nearly a double-digit annual growth. One of the major reasons for growing to our potential is corruption at all levels right from the top to bottom. This is a menace that is deep-rooted in the country and Prime Minister Narendra Modi showed lot of promise to end this menace, when he secured majority in Lok Sabha elections in 2014, first time any party has done in the last 30 years. But so far there is no visible effort to end this corruption menace so as to ensure the economy marched ahead. (IPA Service)