It will take India some tough decisions and several years before it can think of going back to a growth era of 8 per cent and more, which was an easy walk through till a few years ago, International Monetary Fund (IMF) has said.
“To go back to eight per cent (annual growth rate) you (India) need to see move on a lot of fronts and investment picking up very robustly.
“It will depend very much on whether the government can deliver on all the reforms that they’ve committed to and sustain this reform momentum,” Laura Papi, IMF Assistant Director, formerly with its Asia and Pacific Department, told reporters during a conference call Wednesday.
“We think that an important array of reforms is needed to get back to 8 per cent growth including legislative moves. The Land Acquisition Bill requires, of course, parliamentary approval, the GST requires even a constitutional amendment, etc. Labour laws are even further out and less likely,” she said in response to a question.
The IMF had yesterday said India’s growth rate is expected to drop to 5.4 per cent in 2012-13 from 6.5 per cent the previous year.
This is a substantial drop from the impressive growth rate of an average of 8.3 per cent India registered between 2004 and 2011.
“Outlook is for subdued growth and a fairly modest recovery for this year still accompanied by quite high inflation and elevated current deficit.
The reason for this outlook is that investment has slowed significantly and we see some supply-side issues such as supply bottlenecks as having played an important part in lower investment growth and because of this we have also revised down our medium-term growth projection,” she said.
Appreciative of the recent steps taken by the Union Government, she said the key would be on their sustained implementation.
Responding to a question, Papi said there is no silver bullet or one reform that would boost India’s economic growth.
“But the key ones are to solve the problems in the power sector and even there it is not a matter of one reform, but is a matter of several different measures,” she said.
“Power, we think, is very critical because it affects so many other sectors, but there are other reforms which are important,” she said, adding that the whole approval process of investment projects has slowed significantly so that implementation times have increased.
Referring to the cabinet commitment on investment, the IMF official said they will need to see whether this manages to reduce implementation times and get several of these infrastructure projects off the ground and to be completed in a speedy way.
“Beyond this, there are important legislative changes that are necessary. Land acquisition and the GST in our view are the ones that are most likely to have a very important impact on growth.
“But all these reforms are going to take some time, so that’s one reason why we see growth fairly subdued by Indian standards for the next few years,” Papi said.
The IMF official said corruption seems to have an impact on the speed of approvals of projects.
“This may not be all bad. More transparency, etc, requires more time and is a good thing, but over time what we want to see is that there is also acceleration in project approval and also clarity in the sort of policy implementation,” she said.
Papi said capital inflows have strengthened in the last six months or so.
“We have noticed that they’ve responded to domestic developments. There has also been an increase in response to global liquidity conditions.
But in the last year or so we have not seen in India capital inflows that are creating problems from a monetary policy perspective,” she said.
“Indeed, the RBI has very seldom intervened by buying dollars in the last year or so. The few interventions that have taken place have been the other way around, so selling dollars,” Papi said.