“Indian economy may bottom out from the second quarter of the current fiscal which has just ended but it is nowhere close to the 7-8 per cent growth rate,” said V Anantha Nageswaran, Dean, IFMR Graduate School of Business, Krea University.
He was delivering an address on ‘State of Indian Economy’ at Madras Chamber of Commerce & Industry’s (MCCI) Food for Thought discussion series held here on Friday.
Highlighting his argument in his 2016 book, ‘Can India grow?’ co-authored with Gulzar Natarajan, the economist said 8-9 per cent growth rates that India experienced between 2003-08 and few years after 2009 were unique and the country is still not in a position to grow at 8 per cent on a ‘sustainable basis’.
“We are too quick to believe, too quick to talk but too late to realise that there is so much to be done to reach 8 per cent growth rate,” Nageswaran said adding that the country cannot think of higher growth rate with fragmented capacities across the industries.
Rate cut to the RBI is easy but is probably ‘wrong-headed’
“Our sustainable growth rate is only 6 per cent. The problem is that we should recognise it first only then we will know much work to be done,” he added. On increasing clamour for low interest rates, Nageswaran said that asking interest rate cut to the RBI is easy but is probably ‘wrong-headed’.
“When you have a private corporate sector which is still dealing with balance sheet issues, low interest rates might help to stimulate demand but at the cost of medium term of economic stability,” Nageswaran said.
In his speech, T.T. Srinivasaraghavan, Managing Director, Sundaram Finance Limited said, “There is something more fundamental and deeper that is restraining people from spending.”
Highlighting the de-growth in savings, Srinivasaraghavan said the country’s gross savings rate came down from 39 per cent in FY08 to 30 per cent in FY18. “Household savings are coming down but it is translating into consumption as well then where are these money going? ” he wondered.
Noting that the automobile sector is going through a ‘bloodbath’, Srinivasaraghavan said however the passenger vehicle segment is not in dire situation as it is shown. “A school of thought attributes the spike in passenger vehicle growth in FY17-18 to uberisation. The growth was not a normal one so if we remove that factor, the situation is not that scary,” he added.
Corporate tax cut alone is not sufficient
Terming the US-China Trade War as a golden opportunity for India, Srinivasaraghavan said the government’s move to reduce the corporate tax rate is a welcome move but that alone is not sufficient. “The government has done its part. Isn’t it the right time for the industry and trade bodies to ask what we can do for our country?” Srinivasaraghavan asked.
In his initial remark, Sunder Ramaswamy, Vice-Chancellor, Krea University and moderator of the event, said that from one of the shiniest and high performing economy, India is now ranks third worst from bottom out of 14 other large economies. “It’s high time for a major structural reforms like 1991 be it banking, labour, agriculture or bureaucracy,” he added.
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