The Indian economy slowed down in the last quarter to 5.7 per cent growth. However, International Monetary Fund (IMF) chief Christine Lagarde has expressed confidence that the structural changes in the economy like the Goods and Services Tax (GST) and demonetisation have put the Indian economy on a “solid track”.
Recently, the International Monetary Fund slashed India’s growth projection for the current and next fiscal, but Lagarde said on Sunday that the Indian economy is on a very solid track in the mid-term.
“Turning to India…we have slightly downgraded India; but we believe that India is for the medium and long-term on a growth track that is much more solid as a result of the structural reforms that have been conducted in India in the last couple of years,” the IMF Managing Director Lagarde said.
Lagarde described demonetisation and the rolling out of GST as a “monumental effort” and said it is hardly surprising that here “is a little bit of a short-term slowdown” as a result.
“But for the medium term, we see a very solid track ahead for the Indian economy,” she said while responding to a question on India.
She also said that metrics of inflation, fiscal deficit and structural reforms would deliver jobs.
“We very much hope that the combination of fiscal, because the deficit has been reduced, inflation has been down significantly, and the structural reforms will actually deliver the jobs that the Indian population, particularly the young Indian people expect in the future,” Lagarde said.
Meanwhile, Union Finance Minister Arun Jaitley, who is on a week-long trip to the US, said in Washington DC that some of the economic reforms were brought in when the economy was growing at a higher rate and that the country is heading towards an even higher growth trajectory.
“When the world was growing at two-and-a-half per cent, India was the fastest-growing major economy in the world. That was a time to really fix the roof. You don’t have to wait for a downward slide in order to do it,” Jaitley said. “I think, this was just the right time to bring about structural changes.”
Demonetisation, however, did deliver a jolt to the economy, heavily affecting the informal sector. Critics claimed that the economy had taken a toll at least for the short term, a claim rubbished by Jaitley.
“The fundamental question is: Does India continue to indefinitely be a cash dominated economy? To say it’s a very risky proposition, it will have adverse consequences for a quarter or two, so let’s not attempt it? Can India say, you will have de-stocking, so let’s not attempt a GST?,” Jaitley asked.
The principal detractors of Jaitley and his party, the BJP, are the Opposition Congress during whose rule the GST was introduced. Jaitley accused the Congress of opportunism and being non-committal towards ending black money.
“Attacking or ending this black money was never a priority for the Congress. So their concern (about demonetisation) is natural. And GST was a Congress move. But since (the Congress) party is an opportunist party, it is opposing it,” he said.
“Populism is what we did not indulge in. We could have let people live in a cash dominated economy and let India continue to have a shadow economy and have everyone really prosper on that basis. (But) we struck a blow to that kind of an economy. That’s not populism. That was the right economic policy to follow,” he said.
Both the IMF and World Bank in their economic outlooks slashed India’s growth projections, but concluded the drop was due to short-term changes and the economy would grow in the mid-term and long-term at a healthy pace. Jaitley has, thus, received much needed support for his decisions from global economic influencers. The finance minister said this would increase investor confidence in India.
“There is a global appreciation of the fact that India has the capacity and courage to carry out structural reforms like demonetisation and GST.
“Now that you have the global economy also improving, and that’s the mood that I’ve seen at the IMF-Bank this time — the IMF’s own projection for the world economy this year is 3.6 per cent and next years is 3.7 per cent — the global tailwinds will also give better impetus to domestic growth,” said Jaitley.
“I think, we should be looking forward to a much higher growth trajectory (for India) in the days to come,” he said.
Questioned on reforms in the pipelines, Jaitley said that the Centre is now focusing on large-scale investment in the infrastructure sector and rural area. “The government is working in that area,” he said.