These are not the best of times for the Indian economy.
New Delhi, Oct 16: These are not the best of times for the Indian economy.
While the Indian automobiles industry is going through one of the worst phases it has ever seen, the other sectors are also enduring some tough times.
Indian-American Abhijit Banerjee, who was on Monday awarded the 2019 Nobel for Economics, said Indian economy is on shaky ground.
The data currently available do not hold any assurance for the country's economic revival anytime soon, he stated.
"The condition of Indian economy is on a shaky ground. After witnessing the present (growth) data, just can't be sure about it (revival of economy in near future).
"In the last five-six years, at least we could witness some growth, but now that assurance is also gone," Banerjee told a news channel from the USA.
The 58-year-old economist, who bagged the coveted prize jointly with his wife Esther Duflo and another economist Michael Kremer for his "experimental approach to alleviating global poverty", said he never thought he would get a Nobel so early in his career.
"I have been doing this research for the last twenty years. We have tried offering solutions towards alleviation of poverty," Banerjee, who is currently the Ford Foundation International Professor of Economics at the Massachusetts Institute of Technology (MIT), said.
Finance Minister Nirmala Sitharaman meanwhile, blamed the previous UPA government for the slump in the banking sector.
The minister said that the Indian public sector banks had the "worst phase" under the combination of former Prime Minister Manmohan Singh and RBI Governor Raghuram Rajan.
Delivering a lecture at the prestigious Columbia University's School of International and Public Affairs here on Tuesday, Sitharaman said that giving all the public sector banks a “lifeline" is her primary duty.
"I'm taking a minute to respond… I do respect Raghuram Rajan as a great scholar who chose to be in the central bank in India at a time when the Indian economy was all buoyant," Sitharaman said during the lecture organised by the Deepak and Neera Raj Centre on Indian Economic Policies of the Columbia University.
Asked about Rajan’s comments during a recent lecture at Brown University in which he had apparently mentioned that in its first term, the Narendra Modi government had not done better on the economy because the government was extremely centralised and the leadership does not appear to have a consistent articulated vision on how to achieve economic growth, the minister said instead there were major issues with bank loans during Rajan's tenure as the central bank head.
"It was in Rajan’s time as Governor of the Reserve Bank that loans were given just based on phone calls from crony leaders and public sector banks in India till today are depending on the government's equity infusion to get out of that mire," she said.
"Dr Singh was the Prime Minister and I'm sure Dr Rajan will agree that Dr Singh would have had a ‘consistent articulated vision’ for India," she said amid laughter from the audience.
"With due respect, I’m not making fun of anybody but I certainly want to put this forward for a comment which has come like this. I have no reason to doubt that Rajan feels for every word of what he is saying. And I'm here today, giving him his due respect, but also placing the fact before you that Indian public sector banks did not have a worst phase than when the combination of Singh and Rajan, as Prime Minister and the Governor of Reserve Bank, had. At that time, none of us knew about it," she added.
Sitharaman said while she is grateful that Rajan did an asset quality review, but people should know what makes the banks ailing today.
"I am grateful that Rajan did an asset quality review but I’m sorry, can all of us put together also think of asking what ails our banks today. Where has it been inherited from," she said.
The event was also attended by former NITI Aayog Vice Chairman Arvind Panagariya, professor and eminent economist Jagdish Bhagwati and India's Consul General in New York, Sandeep Chakravorty.
"While economists can take a view of what prevails today or prevailed years ago, but I will also want answers for the time when Rajan was in the Governor's post speaking about the Indian banks, for which today to give a lifeline is the primary duty of the Finance Minister of India. And the lifeline-kind of an emergency has not come overnight," Sitharaman said.
Responding to the question, Sitharaman further pointed out that if there is a feeling that there's been a centralised leadership now, "I'd like to say that very democratised leadership led to a whole lot of corruption. Very democratised leadership. The Prime Minister, after all is the first among equals in any cabinet".
"You need to have a country as diverse as India with an effective leadership. A rather too democratic leadership, which probably will have the approval of quite a lot of liberals, I’m afraid, left behind such a nasty stink of corruption, which we are cleaning up even today," she said.
However, despite the gloomy forecast and downcast mood, the International Monetary Fund (IMF) has asserted that it is not all doom and gloom for the Indian economy.
Although India's economic growth rate has been cut to 6.1 per cent for the current fiscal year, it still remains "very strong" by global standards, the IMF's Deputy Research Director Gian Maria Milesi-Ferreti said on Tuesday.
He and IMF Chief Economist Gita Gopinath made optimistic projections for India's economy to pick up next year while addressing a news conference for the release of the IMF's World Economic Outlook (WEO) report in Washington.
According to the report, India and China with their projected growth rate of 6.1 percent for the current year share the top rank among major economies.
India's "overall growth remains very strong by the standards of the world economy even though it is lower than the very high standards to which we were accustomed to in looking at India," Milesi-Ferreti said, adding that that a "growth rate above six per cent is still notable and extremely important in a country that has such a large population".
This growth rate is in contrast to the global economy which, Gopinath said, is "in a synchronised slowdown, with growth for 2019 downgraded again - to 3 percent - its slowest pace since the global financial crisis".
The IMF has forecast "a further pick up next year" for India's economy helped by tax cuts on the corporate sector, he said.
"In our projections, we have that India would recover to seven per cent growth in 2020," Gopinath said.
In India "there has been a negative impact on growth that has come from financial vulnerabilities in non-bank financial sector and the impact that has had on consumer borrowing, borrowing by small and medium enterprises", she said.
The hike in growth projection for next year is based "on the premises that these particular bottlenecks will clear up," Gopinath said.
"Appropriate steps have been taken" to deal with these problems, while "still a lot more that needs to be done including cleaning up of the balance sheets of the major commercial banks."
Also, she said, "On the fiscal side for India there have been some recent measures including the corporate tax cut".
While India has not yet said how it would offset the revenue shortfall from this measure, the revenue projections look optimistic, she said.
"It is important for India to keep the fiscal deficit in check," she added.
The WEO has cut India's growth rate by 0.9 per cent to 6.1 percent from the 7 per cent made in July and by 1.2 percent from the 7.3 per cent in April.
IMF's projected growth rate of 6.1 per cent for 2019-20 is consistent with the Indian Monetary Policy Committee's forecast.
Explaining the cut in growth projection for India, the WEO said: "India's economy decelerated further in the second quarter, held back by sector-specific weaknesses in the automobile sector and real estate as well as lingering uncertainty about the health of nonbank financial companies."
It added that "corporate and environmental regulatory uncertainty" were other factors that weighed on demand.
WEO projected China's economic growth to slow down to 5.8 per cent next year in contrast to India's 7 per cent.
In the Euro area, growth is projected to be only 1.2 percent this year and 1.4 next year, with German economy expected to grow by a dismal 0.5 per cent this year.
United States is expected to do slightly better with a 2.1 per cent growth projected for this year and 2.4 per cent for the next.
Gopinath blamed the slowdown on rising trade barriers, uncertainty surrounding trade and geopolitics, and structural factors, such as low productivity growth and an aging population in developed countries.
WEO said India's growth in 2019 is sharply lower than the 6.8 per cent in 2018 "for idiosyncratic reasons, but is expected to recover in 2020".
The reduction in India's growth projection for this year "reflects a weaker-than-expected outlook for domestic demand", WEO said.
India's future "growth will be supported by the lagged effects of monetary policy easing, a reduction in corporate income tax rates, recent measures to address corporate and environmental regulatory uncertainty, and government programs to support rural consumption", it added.
In the medium term, the IMF expects India's growth to stabilise at about 7.3 per cent, based on continued implementation of structural reforms.
The IMF suggested that India should use monetary policy and broad-based structural reforms to address cyclical weakness and strengthen confidence.
"A credible fiscal consolidation path is needed to bring down India's elevated public debt over the medium term. This should be supported by subsidy-spending rationalisation and tax-base enhancing measures."
Other measures it suggested included reducing the public sector's role in the financial system, reforming the hiring and dismissal regulations that "would help incentivise job creation and absorb the country's large demographic dividend," and land reforms to expedite infrastructure development.
The auto sector is one of the areas affected globally, according to the WEO.
"The automobile industry contracted in 2018 for the first time since the global financial crisis, contributing to the global slowdown since last year," it said.
Global car sales fell by three per cent last year, while the number of automobile units manufactured declined by 1.7 per cent, in value terms it fell by 2.4 per cent, WEO said.
The number of units produced by China fell by four per cent, its first decline in more than two decades, according to the WEO.
It said the two main reasons for the decline of the auto sector were the removal of tax breaks in China and the rollout of new carbon emission tests in Europe.
The auto industry, it noted had a large global footprint and vehicles and related parts are the world's fifth largest export product, accounting for about 8 percent of global goods exports in 2018.
News24 Bureau with Agency Inputs
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