Our growth story is not hostage to performance in some quarters, says Nirmala Sitharaman at Columbia University’s School of International and Public Affairs
The finance minister said strong growth can be sustained only if there is macroeconomic stability
New Delhi: Finance minister Nirmala Sitharaman said more reforms are on the anvil this fiscal to boost growth as fresh economic data and subdued corporate earnings point to a deeper economic downturn.
“We have just entered the second half of 2019-20 and already implemented a series of reforms with more on the anvil before the close of year. The reforms were and will be guided by close scrutiny of growth evidence in the economy," she said at Columbia University’s School of International and Public Affairs on Tuesday.
Sitharaman has already announced a series of measures, including a deep cut in corporate tax, to counter a severe demand slowdown and slump in private investment that have left economic growth stuttering at a six-year low of 5% in the quarter ended June.
Bad news has been pouring in since. While growth in private consumption expenditure slumped to the lowest in 18 quarters in the three months ended June, industrial output in August contracted to a near seven-year low and merchandise exports dipped to a three-year low in September.
Dharmakirti Joshi, chief economist at rating company Crisil, said the government has little room to further stimulate growth through fiscal policy measures. “The push towards privatization through asset monetization and disinvestment drive will be one of the reforms that needs to be done, along with streamlining of goods and services tax in terms of timely refunds and plugging revenue leakages. Right now, the scope of stimulating the economy lies more with monetary policy as fiscal policy doesn’t have enough space."
On Tuesday, the International Monetary Fund (IMF) joined other agencies in cutting its growth forecast for India by 90 basis points to 6.1% for 2019-20, citing a cyclical demand downturn.
On IMF’s latest growth projection, Sitharaman said: “We continue to remain one of the fastest growing economies in the world. Our growth story is not hostage to performance in some quarters."
However, Sitharaman said economic growth has been buffeted by the winds of trade wars, protectionism and volatility in crude prices as well as crude supplies. “However, that hasn’t deterred us from continuing on the path of structural reforms," she added.
Sitharaman said the corporate tax cut announced last month was intended to improve profitability of companies and encourage them to invest. “We are expecting that improved compliance, in the form of companies choosing to give up on tax exemptions, will neutralize some revenue loss, while the rest of the shortfall will be met by disinvestment proceeds," she said.
The government has targeted to generate ₹1.05 trillion in 2019-20 through asset sales, including that of Air India. Sitharaman said disinvestment in 25 public sector enterprises is underway to facilitate creation of fiscal space and improve the efficient allocation of public resources.
The finance minister said strong growth can be sustained only if there is macroeconomic stability. “Therefore, despite all odds, we have continued our journey of sticking to a glide path for fiscal deficit enumerated in my budget speech," she added.
On Tuesday, at the release of the World Economic Outlook, IMF chief economist Gita Gopinath said that though the Indian government had announced some measures on the fiscal side, including the corporate tax cut, there has been no announcement on how that would be offset through revenues. “So, the revenue projections going forward look optimistic. But it is important for India to keep the fiscal deficit in check."
While the government has stuck to its borrowing target in the second half of FY20, analysts projected that slower revenue collections, lower nominal GDP growth and the corporate tax cut would amount to a slippage of the fiscal deficit target of 3.3% of GDP by at least 40 basis points in the year ending 31 March.
Sitharaman said she is confident the Indian economy will achieve the $5 trillion target by 2024-25 with favourable conditions such as growth higher than 7.5%, inflation at 4%, investment rate at 36% and with some degree of rupee depreciation.
During a question-answer session after her lecture, Sitharaman said trade negotiations between India and the US are going well and will conclude sooner than expected. “I think trade talks would conclude sooner. The talks are going on very well. Yes, we couldn’t conclude it before the prime minister’s visit (to the US) happened. But both sides are engaged with all commitment."
Last month, India and the US failed to announce a limited trade deal in New York during a meeting of Prime Minister Narendra Modi and US President Donald Trump, due to differences over the package, including access Washington has sought to Indian markets for medical devices such as stents and knee implants, information and communications technology products and dairy products with the removal of price caps.