India Economy

Growth ahead but challenges aplenty

J MULRAJ India’s GDP growth | Updated on January 20, 2018 Published on May 15, 2016

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Strong legal structures and domestic growth move in tandem

Whilst the rest of the world grows at a slower pace, India’s economy, with its huge domestic market, is growing at 7.5 per cent. Export-driven economies are faring poorly due to various factors, such as the slowdown in China, which used to suck up commodities when its economy was booming, easy liquidity, and the turmoil in oil producing nations after the collapse of crude oil prices.

India’s positives

In such a global scenario, India’s GDP growth, estimated at 7.5 per cent, remains a bright spot on the investment firmament. News that global investors coming in through the Mauritian route would have to pay capital gains tax for any investments made after April 1, 2017, led to an initial decline in the market , but it recovered soon thereafter. As Rakesh Jhunjhunwala, celebrated investor, points out, global investors are hardly going to stop investing in good investing opportunities only because they now need to pay tax at 7.5 per cent on capital gains. So, the Indian economy would be attractive if investors believe growth would continue to be strong.

Infrastructure initiatives

As Arvind Panagriya, Vice Chairman of Niti Aayog (erstwhile Planning Commission) points out, of the ₹3.8 lakh crore of investment stuck in road projects for various reasons, the government has been able to unblock projects worth ₹3.5 lakh crore. The pace of road construction, which had fallen to 8.5 km per day in the last two years of the previous government, has risen to 16.5 km per day.

Similarly, railway track expansion has gone up from 4.3 km per day to 7 km per day. Both these involve huge outlay. The economic activity creates jobs, and spending power to grow the economy. Private sector capex investment should follow, once surplus capacity is absorbed. The road and rail projects mentioned above would help absorb excess supply in steel and cement. An encouraging sign is the pick-up in indirect tax collection, which has gone up an amazing 42 per cent in April. Excise collections are up a phenomenal 70 per cent to ₹28,000 crore.

Struggles ahead

The countries that are facing problems are those where exports form a large part of their GDP. Germany, the world’s fourth-largest economy, derives 45 per cent of its GDP from exports, and would be the most affected if its customers are unable to pay because of weakness in their economies. China and India derive 22 and 23 per cent of their GDP from exports, respectively. India has a large domestic market and the economy is moving, after policy initiatives in roads, railways and other government-led investments.

The global scenario is not encouraging; there are several bubbles created by easy money waiting to pop, and a slowdown in global trade that bodes ill. In contrast, the Indian economy, with a huge domestic market and a high savings rate, is faring well. It is however, stymied by the expropriation of savings by white-collar crooks. These must be dealt with very harshly and very swiftly, for India to continue to prosper.

In-house challenges

But the promise of economic growth will be negated unless stricter, and swifter, action is taken against white collar criminals. These white collar criminals floating Ponzi schemes get protected by political and bureaucratic links to ensure that they remain teflon-coated. Imagine, it has taken 12 years for the promoters of Ponzi scheme QNet to be charged! The government, regulators, investigative agencies and judiciary need to confabulate jointly and act much faster on these problems. This will send a strong positive signal to global investors.

The writer is India Head, Euromoney Conferences

Published on May 15, 2016

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