India is struggling to maintain its hold on the global market because of the disastrous economic policies by the ruling party BJP. In fact, when PM Modi called for a meeting with over 30 industry experts and economists to review and take their views on steps to revive the Indian economy on growth and employment, Finance Minister Nirmala Sitharaman was not present at the meeting.
Therefore, this should not come as a surprise that, in fiscal 2020, India’s economy grew 5% in real terms which is the slowest in 11 years. In nominal terms, the size of the GDP is almost $3 trillion, or $2 trillion short of the estimated goal. For perspective, it took us nearly a decade to go from about $1 trillion to $3 trillion when Congress was running the country.
This time, the window is less than four fiscals. That means India will have to more than double its current growth rate in these years, to about 10% per year in real terms, with some inflation and stable exchange rate. Fiscal policies can only bring about a short-term relapse in the economy through a demand boost. But to increase the ‘trend’ or ‘potential’ growth rate would need a much bigger reforms push and an improvement in global trade.
India Ratings and Research (Ind-Ra) expects a marginal improvement in economic growth in next fiscal, however, it cautioned that the downside risks persist. Ind-Ra expects gross domestic product (GDP) to grow at 5.5 per cent in FY21. The ratings agency sees some improvement in fiscal 2021 but said the Indian economy is stuck in a phase of low consumption as well as low investment demand.
Sunil Kumar Sinha, Principal Economist and Director Public Finance, Ind-Ra said that he believes that a strong policy push coupled with some heavy lifting by the government is required to revive the domestic demand cycle and catapult the economy back into a high growth phase.
But the Indian economic situation has everyone worried and rightly so because India’s nominal GDP growth is at its lowest in 45 years. Even that is perhaps a rosier picture than the ground reality according to the former chief economic advisor of the Narendra Modi government who has cast doubts over GDP measurement and said that the measured GDP is overstated. There is simply no dispute that India’s economic growth has collapsed, regardless of how and who measures it. So, what is the way out of this mess? Several economic commentators, finance ministers and Nobel laureates are now in consensus about the remedy: stimulating demand in the economy.
Union minister Piyush Goyal himself accepted that the government needs better transparency and policies for Indian economy to grow exponentially. He said that there is a lot of enthusiasm for making investments in the country. He also added that RCEP was effectively becoming a free trade agreement between China and India. I don’t think India is ready to engage unless we see open government, better transparency, regulatory practices being followed, and a greater market access for Indian goods and services on a reciprocal basis.