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Journalism of Courage
High frequency indicators have dampened hopes of revival of India’s economy in the near future, according to International Monetary Fund chief economist Gita Gopinath. There is a need to fix problems on the financing side as well as improving the sentiment of the industry, she said.
There has been a “steep” slowing in private sector demand, with growth in the last couple of quarters relying “quite heavily” on the government sector, she said at the 92nd FICCI Annual Convention Friday. A “sharp” weakness in investment and consumption growth and a “big” cutback in imports have also indicated this low demand in the economy, she added.
“Looking at some of the high frequency indicators, we are not seeing the kind of uptick we projected,” Gopinath said. Earlier this week, Gopinath had announced that India’s economic growth estimates would see a “significant downward” revision by IMF.
The country’s consolidated fiscal deficit, combining the Centre and states, is “one of the highest in the G20” and borrowing costs are high, said Gopinath. “So it’s not a free lunch and this has to be carefully managed,” she said.
“What we are seeing right now is weakness in investment, and if there is prolonged weakness in investment, that, by construction, affects potential growth,” she said, adding that India’s business sentiment was better in 2014-15 compared with 2019.
“To get manufacturing off the ground and for India to have a bigger presence on the export stage, that would require another set of very big reforms. There are important reforms that are needed with respect to land acquisition, with respect to labour laws and it’s hard to generate an ecosystem where you could end up with large scale manufacturing … without these kinds of reforms taking place,” the senior IMF official said.
