Sunday, Sep 21, 2014

‘Pick low-hanging fruit first for turnaround’

ENS Economic Bureau | New Delhi | Posted: May 18, 2014 1:23 am | Updated: May 18, 2014 1:33 am

crisil-6

The decisive mandate given to the Bharatiya Janata Party (BJP) will help the government take strong and bold reform measures to help boost the sagging economy, said rating agency Crisil on Saturday.

Pointing out that there is limited space to use fiscal and monetary policies to boost growth, Crisil said the new government must first aim for the lowest-hanging fruits such as fast-tracking of projects in pipeline and resolving iron ore and coal mining issues.

“This will improve the efficiency of capital that is now stuck, pave the way for better returns on investment, create jobs, lift income growth and spur private consumption demand,” said Roopa Kudva, CEO and Managing Director, Crisil.

With the economy facing sub-5 per cent growth for two straight years, development issues were at the forefront in the just concluded General Elections.

On Friday, results revealed that the National Democratic Alliance (NDA), led by the BJP won 336 of the 543 seats and the BJP had the single largest majority in the Lok Sabha with 282 seats.

While government formation will be done over the next few days, one of the top priorities for the new government would be passing the full Budget 2014-15 and restoring investor confidence in the economy.

Listing out other priority areas, Crisil said the new government must focus on controlling inflation, fiscal consolidation, improving asset quality of banks, encouraging debt markets and boosting manufacturing and employment.

“Such an agenda will improve India’s competitive efficiencies and pave the way for its re-entry into the orbit of 6.5 per cent to 7 per cent annual GDP growth,” said DK Joshi, chief economist, Crisil.

The economy is estimated to have grown at 4.9 per cent in FY 14 and is expected to make a partial recovery to 6 per cent growth FY 15.

On inflation, the rating agency said the government must use better monetary and fiscal policy coordination, reducing food inflation through measures such as dismantling the APMC Act, given the risks of monsoon failure due to El Nino.

It also called for a more “pragmatic” fiscal consolidation led by reduction in subsidies and curbing expenditure. “It is also critical to simultaneously introduce growth and revenue-enhancing measures such as clearing the long-pending Goods & Services Tax (GST) and improving tax compliance,” it stressed.

It also stressed that banks must have the ability to finance higher growth along with deepening of corporate markets to raise additional resources.

Steps to revive the manufacturing sector will be also be critical. “India’s manufacturing engine — represented in large measure by micro, small and medium enterprises — needs to do well if its fast-multiplying workforce has to find gainful employment,” it said.

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