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Growth prospects looking up |
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As expected, with the Congress-led United Progressive Alliance (UPA) coming to power with less than half the number of allies than it had before and the four Left parties out of the picture, economists are revisiting and upgrading growth prospects of the country. At least six economic forecasters have raised their growth estimates for the current fiscal.
The average forecast for GDP growth in 2009-10 has increased over half a percentage point to 6.35 per cent. Before the elections, growth was projected at 5.61 per cent, according to data collected by Business Standard from eight economic forecasters.
The main factor behind the upwards revisions is that “the political risk has been mitigated with a stable government at the Centre,” according to Subir Gokarn, chief economist with Standard & Poor’s (S&P), a rating agency. “A stable government will speed up certain investment decisions so people would be more positive about the future.” Although S&P — which downgraded India’s sovereign rating outlook on account of the rising fiscal deficit in January 2009 — has not revised its growth estimate, others like Morgan Stanley, Nomura and Kotak Mahindra had all done so.
“The election results will have a positive impact,” said Saumitra Chaudhuri, an economist with rating agency ICRA Ltd and member of the Prime Minister’s Economic Advisory Council. He said the negative bias to growth will go out his earlier prediction of 7 per cent, with a range of half a percentage point.
Economists agree that these upward revisions are expected to have an impact on corporate investments, which were the main driver when the Indian economy grew at 9 per cent and above for three years till March 2008, contributing nearly 50 per cent of the expansion in output. Citigroup analysts say “while trends in consumption are likely to sustain, given that the government had already implemented fiscal stimulus measures over the past year, the UPA’s clear majority would now spur investment growth as well.”
There are expectations that the government, free of Left, will push economic reforms in areas like banking, insurance and capital markets that will enable greater capital flow into the economy.
Industry wish list: In fact industry body Assocham, while seeking another stimulus package to stimulate housing, construction and real estate sectors, has said the new UPA government should go in for disinvestment of leading public sector companies and banks up to 49 per cent. It is also proposing that foreign direct investment in insurance sector should be increased from 26 per cent up to 49 per cent. Other demands include further reduction in interest rates, particularly for the small scale sector, reducing both personal tax and corporate tax by five percentage points to increase public spending. On the agricultural sector, the chamber said there is a need for a long-term farm policy aimed at promoting farmer-industry interaction, development of efficient supply chains to connect farmers to urban consumers and processing industry. Not loosing cite of the rural sector the industry chamber wants low priced rice, wheat, pulses and kerosene to be made accessible to all below poverty line families.
Highly motivated cabinet: The high expectatiaons are matched by a highly motivated team of ministers. Describing his new assignment as challenging, the new Law and Justice Minister Veerappa Moily said there was a scope for a lot of reforms in judiciary and the need to "jettison" some laws which are really detrimental to the development and governance. "Law making is an important process including for combating terrorism, communalism and many other things," said Moily, a lawyer turned politician.
Another lawyer-turned politician Kapil Sibal, who was shifted to the Human Resources Development Ministry from Science and Technology, said his ministry lends itself to the future of the country and there were enormous opportunities to tap. "The HRD ministry has got an enormous expanse touching every home of India and truly represents a way forward for India and to get a roadmap which is job oriented," said Sibal.
Praful Patel, who retained Civil Aviation ministry as Minister of State for Independent charge, said passenger safety will continue to get top priority. Patel also said infrastructure will be a "big focus" of the UPA government in its second term.
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