Today's Market: Can India revert to 8-9% growth? - Indian Stock Market News
Investing in India? Get Equitymaster Research  
Can India revert to 8-9% growth? 
(Thu, 22 Nov Pre-Open) 
The financial meltdown of 2008 caused a lot of damage. India was chugging along happily at 8-9% GDP growth before the crisis. But since then it hasn't been able to find its feet. The growth rate in the fiscal year, 2011-12 slipped to nine-year low of 6.5%. Even for next year the outlook remains weak. The Reserve Bank of India (RBI) sharply lowered the economic growth projection to 5.8% in FY13, down from 6.5%. This is in view of global and domestic factors including the poor investment cycle and subdued demand. The Finance Minister is also similarly pessimistic. P Chidambaram believes that India's economy should expand by 5.5-6% in FY13.

But according to Jagdish Bhagwati, professor of economics and law at Columbia University, India could revert to the pre-crisis growth levels in a few years. Sustained economic reforms are integral to sustainable growth. If the government sticks to the measures undertaken so far and if it intensifies them there is no stopping us. The government recently liberalised Foreign Direct Investment (FDI) policy in retail, aviation and has approved changes in the banking and insurance laws, with higher FDI limits. The government also has taken other measures in hiking diesel prices and capping the number of subsidised LPG cylinders. The RBI is also looking at doling out new bank licenses soon.

While reforms have started well, and arguably reduced some risks for the economy, they need to be sustained in order to lead to a more meaningful improvement in the business cycle. In order to revive the investment cycle, there should be another policy push to speed up environment clearance. Land and fuel supply related issues still need to be addressed. Efforts also need to be made to rein in the fiscal deficit. But, while investors are still cautious there are some improvements being seen at the ground level. The interest rate cycle has peaked and the government has taken a more serious eye towards reform. If this continues and the reforms are strongly implemented growth may just come back.
View all commentaries | Archives  RSS
Read the latest Market Commentary

Equitymaster requests your view! Post a comment on "Can India revert to 8-9% growth?". Click here!

27,458.64 (0.00%)
Mar 27, 2015 (Close)
View Detailed Quote