New Delhi: Hailed as "the bright spot" in a gloomier global economy, India outpaced China as the world's fastest growing economy in 2015 and is expected to clock 7-7.5 per cent growth in the New Year provided the reform momentum continues and the business environment improves.
Finance Minister Arun Jaitley says that subdued global economy and moderate private sector investment will continue to pose challenges, while his top priorities for the New Year include rolling out the long-delayed GST, rationalising direct taxes, ensuring further ease of doing business and putting more money for social and physical infrastructure.
While the needs for further remains continue to be underlined by the experts as well as the policymakers as a key requirement for India to maintain its growth momentum, World Bank's Chief Economist Kaushik Basu is confident that India can continue to top the charts with fastest growth among all major economies.
Expecting India to grow at 7-7.5 per cent in 2016, Basu said, "India will still be the leader among major economies. Not only in 2015 but we expect India to lead that chart in 2016 as well."
It will still remain off the targeted growth rate of 8-10 per cent in the foreseeable future unless the reforms momentum shifts to a much faster gear.
Going forward, Jaitley will have a tough time in sticking to the fiscal roadmap (3.5 per cent of GDP in 2016-17) while taking care of additional outgo towards seventh Pay Commission award and One Rank One Pension (OROP) for retired defence personnel.
For the current financial year ending in March, the latest estimates peg the GDP growth rate at 7 to 7.5 per cent, which will be significantly lower than 8.1 to 8.5 per cent predicted by the government in February 2015.
Although the year began with lot of promise, growth rate could not pick up as much as expected, mainly because of faltering global economy, decline in exports, deficient rains, and inability of the government to push big-ticket reforms like Goods and Services Tax (GST) and land acquisition law.
India's economic growth still accelerated to 7.4 per cent in the July-September quarter, overtaking China as the world's fastest growing major economy, on pick up in manufacturing, mining and services sectors.
Multilateral lending agency IMF termed India as a 'bright spot' in otherwise slowing global economy.
The 1.25 per cent reduction in key interest rate by the Reserve Bank in 2015, coupled with A host of steps taken by the government to improve the ease of doing business, is likely to give push to the economy.
In 2015, the economy has been a beneficiary of a huge meltdown in crude oil prices, giving a great elbow room to the government to keep its finances in shape in a year which otherwise witnessed subdued domestic demand and quite a sluggish external market.
While exports were bruised and kept declining for the entire year, private consumption within the domestic market received a cushion from the falling auto fuel bills.
Jaitley said that rolling out GST regime is "certainly" doable in 2016 and he was in "continuous touch" with the Congress in a bid to persuade them to cooperate in Rajya Sabha for passing the Constitution amendment bill for the new indirect tax regime.
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"I hope that in the next session (of Parliament), the GST will make headway," he told PTI.
Looking back at 2015, Jaitley said India has been the bright spot with growth prospects of 7-7.5 per cent despite global slowdown and adversities, and expressed optimism that the growth rate which is "quite good" would improve further in the months to come.
CII Director General Chandrajit Banerjee said that 2015 is coming to an end with some commendable achievements for the Indian economy. During the year, the growth momentum picked up, inflation climbed down and the twin deficits remained in control, he said.
"India was able to gain from the decline in international prices of oil and other commodities. This helped the turn-around in the economy," he said.
In the mid-year economic analysis tabled in Parliament, the Finance Ministry said the economy has consolidated the gains achieved in resolving macroeconomic stability from the beginning of the last fiscal.
"Given the challenges of real GDP measurement, we estimate that real GDP for the year as a whole will lie in the 7-7.5 per cent range. CPI (retail) inflation is likely to be within the RBI's target of about 6 per cent," the Mid-Year Economic Analysis 2015-16 tabled in Parliament said.
The Finance Ministry believes that supply side reforms and demand management will be essential to push Indian economy rapidly to its medium-term growth trajectory.
Supply side reforms can help restart the private investment cycle, notably through recognition and resolution of the balance sheet problems of firms and banks as well as creating a clean and favourable tax environment through implementations of GST, according to the Ministry.
Industry body ASSOCHAM said the commodity-led meltdown is expected to continue for better part of 2016 even as crude oil touched an 11-year low in 2015.
"Challenges lie in repairing the damage done to the agricultural sector resulting from two successive Monsoon failures and reviving the investment sentiment back.
"The most important job for the policy makers and the RBI should be to bring the banks back to sound health as stakes are too high for the country's financial sector," it said.
The next year's Union Budget will be a keenly watched document as the government is expected to start gradual reduction in corporate tax rate to 25 per cent.
Lowering of corporate tax could be a big boost for the industry which till now has been reluctant in speeding up investment.
In the current financial year, investments have mainly come from the government in sectors like infrastructure and agriculture.
With bad loans haunting the banking sector, government and the RBI have take slew of measures to improve and strengthen balance sheet of public sector banks.
Still, it would be global headwinds that would need to be analysed to ensure minimal impact on the domestic economy.
RBI Governor Raghuram Rajan has also said that the US Federal Reserve's long-awaited rate hike and the developments in China call for a careful calibration of domestic policies to withstand global headwinds, even as managing "volatile" volatility has become a big challenge for the guardians of financial stability across the world.
"The risks associated with weaker growth prospects in key advanced and emerging market economies combined with tighter financial market conditions and weak commodity prices could pose many challenges.
"While India appears to be relatively better placed compared to many of its emerging market peers, thanks to a combination of prudent policy measures and benign commodity prices, there are a few issues that we need to take note of as we prepare to take on the emerging risks," RBI said.
In a report, rating agency ICRA said that revision in salaries and pensions of central government employees post implementation of the recommendations of the Pay Commission would trigger a modest improvement in demand for lower ticket sized consumer durables in 2016-17.
The Commission's award will put an additional burden of over Rs 1 lakh crore annually on the exchequer.
