India’s finance minister Arun Jaitley indicated to institutional investors in New York that economic growth for the country could be at a higher 8 to 8.5 percent range, if this year’s monsoon turns out to be at an above average 106 percent, as estimated recently by the Indian Metrological Department (IMD).
Jaitley met institutional investors at an event hosted by Citi Group on Tuesday, highlights of which were encapsulated in a report to its clients.
Boosting investments towards public sector infrastructure, aiding the rural economy and increasing the pace of reforms have been highlighted as key thrust areas for the Narendra Modi-led government.
The finance minister, in his interaction, highlighted recent specific measures undertaken by the government; involving a crop insurance and a new irrigation scheme, investments in rural roads and electrification -- to boost the rural economy.
India’s Gross Domestic Product (GDP) expanded at a slower pace of 7.3 percent for Q3FY2016 (October-December 2015), according to official data released in February this year. The Reserve Bank of India has pegged India’s growth expansion, unchanged, at 7.6 percent, as per its latest policy statement this month.
Citi analysts, in the same report, said that recent macro-economic data indicates that a gradual cyclical recovery will push GDP growth to 7.7 percent in in FY2017E.
“Delayed salary hikes in the public sector are a risk to our consumption forecast but hopes of ‘normal’ monsoon bode well for rural demand. Overall, India’s relative macro outperformance continues in a difficult global environment,” Citi economists Samiran Chakraborty and Anurag Jha, alongside analysts Surendra Goyal and Vijit Jain, said in the report.
The government has taken measures to further open up the economy and simplify procedures to ease doing business. India’s ranking in the ease of doing business has improved to 130 from 142 earlier.
Amongst key reforms, Jaitley said he does not expect opposition to the passing of the Bankruptcy Code bill, which is currently before the joint parliamentary committee, a Citi report to clients said. This bill is expected to be tabled in parliament in May.
Jaitley was quizzed about several macro-issues and risks which the economy faced at the moment, including a slow capex cycle, rising non-performing assets (NPAs) in balance sheets of banks and global risks which India could face from external factors.
Jaitley acknowledged a number of factors contributing to the weak private sector fixed investments (these include stretched bank balance sheets, excessive corporate borrowing, excess capacity, demand slowdown and global headwinds), the Citi report says.
On the banking front, Jaitley said that that bank NPAs/stressed assets are largely attributable to 5-6 sectors – steel, power, infrastructure, highway, textile and sugar. The government intends to tackle the same on a sectoral basis (Steel: fixed minimum import price, Power: UDAY reforms, Sugar/Highway: improving business conditions), the report said.
The government has recapitalised banks for Rs 250 billion last year and the plan is to provide a similar amount this year.But banking analysts have argued that this amount is insufficient.
Speaking about reducing the government’s stake in state-run banks, Jaitley said the government will look at reducing their stakes in these banks to 52 percent, once the financial health of these banks is restored. But he said that the current political climate in India is not ready for government to reduce ownership to below 51 percent, as an amendment to current banking act will need to be passed, the Citi report said.
There are global headwinds which India could face, involving slow export growth and an uptrend in oil prices apart from uncertainty over quantum of monsoon.