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Key reforms like PSB privatisation, DFI to help push growth, says CEA Krishnamurthy Subramanian

Subramanian said that it was the overhang from stress in the financial sector that had been the key contributor to the economic slowdown in India in the period prior to the pandemic.

By: ENS Economic Bureau | New Delhi |
April 23, 2021 3:01:03 am
Clockwise from top left: Amy Kazmin, South Asia Bureau Chief—Financial Times; P Anbalagan, CEO, Maharashtra Industrial Development Corporation; Jahangir Aziz, Head—Emerging Markets Economics, JP Morgan; K V Subramanian, Chief Economic Adviser; and Rohini Malkani, Senior Vice President, Credit Ratings, Global Sovereign Ratings, DBRS Morningstar. (Screengrab)

The Indian economy was set to reverse the trend of declining growth in the last quarter of FY20 when the Covid-19 pandemic hit, said Chief Economic Advisor Krishnamurthy Subramanian on Monday, adding that the country would achieve a GDP growth level of 7 per cent by FY24.

Addressing concerns that a slowdown in global trade and foreign investments had shifted India’s growth trajectory downwards, Subramanian said that it was the overhang from stress in the financial sector that had been the key contributor to the economic slowdown in India in the period prior to the pandemic.

“If you look at all the high-frequency (economic) indicators, they were all peaking till February end … if the pandemic counterfactually hit in the month of April for instance, our growth for Q4 (FY20) would have been 6 per cent plus so we would have actually indeed reversed this pattern (of declining growth),” said Subramanian at the “India’s quest for economic power” event by The Indian Express and Financial Times.

Even prior to the pandemic, the growth had been steadily declining from 8.2 per cent in Q2 FY19 to 3.3 per cent in Q3 FY20, which was the last quarter unaffected by the pandemic. Subramanian noted that the decline in growth was primarily due to stress in the Indian financial sectors due to a high proportion of bad loans.

“The decline was primarily because of the overhang of the financial sector,” he said, adding that the “crony lending” during the term of the previous government was the reason behind the stress in the financial sector.

Subramanian added that key reforms including the announcements of a bad bank, a development financial institution (DFI) to fund infrastructure projects and the move to privatise public sector banks in the Union Budget would help push the nation’s GDP growth to about 7 per cent by FY24.

Gross domestic product (GDP) is expected to grow at 12.5 per cent in FY22 on account of the low base in the previous fiscal due to the Covid-19 pandemic. The RBI had projected that the economy would post a 7.5 per cent contraction in FY21.

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“I think that the possibility of a UK Free Trade Agreement (FTA) is higher now than it ever has been,” said UK Minister for Investment Lord Gerry Grimstone, noting that meetings between the two governments had started talks on an enhanced trade partnership which could pave the way for a future free trade agreement.

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