New Delhi: Even as the government went into defensive mode following the announcement of the sharp slump in India's growth rate – from 9.2 percent growth in the last quarter of the 2010-2011 financial year – to 5.3 percent in the corresponding quarter this year, industry doyens are being a little more brutal about India's slowdown.
At a press meet on Friday, industrialist Adi Godrej pointed out that it will take more than just sugar-coated economic growth talk to help resuscitate India's sagging economy. India which once boasted GDP figures as high as 9 percent for a couple of years before the global recession in 2008, saw its growth fall to an abysmal 6.5 percent for the 2011-2012 financial year.
In a bad year for the Indian economy, where the country's fiscal deficit stands at 5.7 percent, its trade deficit at 9.9 percent of GDP (the highest figure in Indian trade history at an alarming $185 billion deficit), and inflation stubbornly staying at 7.23 percent it didn't help to have a bickering Opposition and a benumbed government.
While Finance Minister Pranab Mukherjee on Thursday said that most factors that led to India's slowdown had bottomed out and expressed satisfaction at the turnaround of the mining sector, improved investment growth compared to the previous quarters and no major adverse results on corporate growth, Godrej said policy action and strong leadership could have helped avoided the slump in our growth.
“CII is deeply concerned over the decelerating performance of the Indian economy during the current fiscal with GDP numbers plunging to 6.5 percent in 2011-12, which is even below the 6.7 percent level achieved during the global financial crisis of 2008-09,” said CII president Godrej while interacting with the media on Friday.
Mincing no words, Godrej said “the situation we are in now could have been avoided” and pointed out that “without strong political leadership, nothing can be done”.
“Even if we had we passed the Goods and Services Tax (GST) by April 2011 we would have been in the better situation. The delay in reforms due to political indifference and many other factors has affected us. But, we still have hope,” said Godrej.
However, despite the abysmal growth figure of 6.5 percent for the last fiscal, corporate India believes there is still hope for a recovery. But, one prerequisite is that the apathetic government has to wake up and the Opposition parties have to stop erecting hurdles for the heck of it. The government has to trailblaze another path to radical reforms – like those instituted in the early 1990s.
“The CII feels that the government should react very strongly and we must bring in very strong reform-oriented policies if we want to bring back growth,” Godrej said, adding, “Fiscal deficit should be curbed not by increase in taxes, but by a severe reduction in subsidies – because when things are cheap or free they are misused.”
The CII expressed a need for the country to kickstart an economic revival, suggesting monetary easing to give a fillip to investment and a further reduction in the repo rate by 100 bps (1 percent). It also suggested the opening up of foreign direct investment in sectors such as single brand retail, civil aviation and defence. Also, “allowing FDI in multi-brand retail will go a long way in improving the current negative sentiments on policy inaction and also help increase the capital flows which are essential to arrest the current account deficit and sliding rupee,” Godrej said.
FDI in multi brand retail would also help the agriculture sector overcome supply side bottlenecks and promote inclusive growth and the CII suggests that the government put in place reforms aimed at linking farms to market, said Godrej.
So does that mean the India story is nearing its end?
Apparently not, according to Godrej.
“I don't think the India story is anywhere near over. India's purchasing power (GDP) is now third globally and we have overtaken Japan in that. India's economy is very strong and this is a temporary aberration,” he said, adding that if investors do not look at India, “they will miss a very important bus”.