The government of India, led by prime minister Narendra Modi, is struggling hard to chalk out a positive narrative for the Indian economy.
Even though the world’s fourth-fastest-growing economy hasn’t had a good year so far, the Bharatiya Janata Party (BJP)-led regime insists things are fine.
BJP president Amit Shah recently dismissed concerns over a slowdown saying this was due to “technical reasons.” The Niti Aayog, a government think-tank, believes the downturn has already ended and that growth is expected in the next two quarters. Countering criticism from both within and outside the government, finance minister Arun Jaitley, on Sept. 28, said:
Growth rates are related to several factors, one of the factors is how you fit into the world. Is the world supportive or is the global economy stopping you from growing? There was a period from 2003 to 2008, when we grew with the global trend, and then the world slowed down. We became the fastest growing major economy for the first three years (of the Modi government).
But no amount of wordplay or manipulation seems to stem the tide of negative news: Slipping GDP growth, declining private spending and investments, falling jobs, decreasing industrial production, rising inflation, and rising current account deficit.
And brokerage houses and multilateral institutions are not buying the government’s story—not for this year.
Earlier this month, the United Nations lowered India’s growth estimates to 6.7% for FY17 as compared to the 7.1% in FY16. “The informal sector, which still accounts for at least one-third of the country’s GDP and more than four-fifths of employment, was badly affected by the government’s ‘demonetisation’ move in November 2016, and it may be further affected by the rollout of the goods and services tax (GST) from July 2017,” added the UN’s trade and development report.
The GST, introduced in July to streamline India’s otherwise multi-layered tax system, has taken a toll on India’s growth.
Earlier, the demonetisation of two high-value currency notes led to an acute months-long cash-crunch that took its toll on business and jobs, dragging the whole economy down.
Together, demonetisation and the GST have dragged down growth in the first quarter of this financial year to 5.7%—the slowest in the past three years.
Meanwhile, Macquarie Research also expects GDP growth to slump to 6.7% in this financial year (pdf). The global research firm believes that even in FY19, the economy will be able to stage only a mild recovery. India Ratings and Research, an arm of the global rating agency Fitch, too, has slashed the estimates to 6.7% from the earlier estimated 7.4%.
Earlier, the Asian Development Bank revised its India growth forecast for this year to 7% from its previous estimate of 7.4%. The Organisation for Economic Co-operation and Development, on its part, lowered the figure to 6.7% from its earlier projection of 7.3%.
Now all eyes are set on the Reserve Bank of India’s bi-monthly policy meet on Oct. 04. However, the central bank is also expected to change the country’s growth forecast for this year.