The March quarter results indicate the slow growth rate of 5.3 percent which is the slowest in the past nine years. Prime Minister Manmohan Singh has set up an investment Tracking System to ensure that the projects are completed. India’s Central bank warned that the economic growth might further fall. This growth in the GDP is high by the standards of developed countries but is a disappointment in once booming India.
Robert Prior-Wandesforde a senior economist at Credit Suisse said in an investors note, “It is hard to describe India’s March quarter GDP release as anything other than shocking” and he was sure that the figures would bring “shivers down the spines” of the politicians who would then pressure the RBI to further cut down the key lending rates. This view is shared by other economists as well like Samiran Chakraborty, head of the regional research at Standard Chartered told Bloomberg, “We can’t rule out the possibility of India facing a deeper slowdown in the absence of quicker economic reforms, when the central bank has limited room to cut rates.”
In an official statement from the Prime Minister’s Office it was said, “Major projects will be specially tracked to take them forward on a fast track in order to provide a fresh impetus to the economy. This was in the context of delays faced by projects on multiple fronts – security clearances, environmental clearances, other clearances, land related matters.” This issue was raised at the PM’s Council on Trade and Industry last year to ask the Prime Minister to create a system to track the major projects. To ease the concerns of the investors there was the arrival of the figures that revealed the Indian economy growth of 6.5 percent in 2011-2012.
Finally the Investment Tracking system was introduced to monitor all the projects that cost over 1, 000 crore. So the public sector projects would be tracked by the National Manufacturing Competitiveness Council and the private sectors would be monitored by the Department of Financial Services. These departments would be expected to submit quarterly reports on the progress of the projects and enlighten about any issues that needs to be resolved in order to complete the project.
The figures are considered as the wake-up call for the left-leaning coalition government which was elected in 2009, the government is just filled with corruption and scandals say most of the commentators. It seems like we are heading back to the crisis of 1991 and this was described in the front page news by The Economic Times with the headline stating, “Goodbye 2020, Hello 1991!” The other indicators that are the source for worry are the rupee at historic low, annual inflation remaining high at 7 percent, the public deficit is large.
The high public deficit means that the government spending has to reduce and the high inflation makes it difficult for the Central Bank to cut the interest rates. Analysts say that ideological differences and the distractions over corruption scandals have made the government unable to push through reforms to open up the economy and throw out the red tape. A long standing recommendation by the business leaders to open the retail sector to foreign investment last year ended with a revolt in the coalition. After the publication of the GDP the government announced to ban officials meeting in five star hotels to save money.
In a note to its client Morgan Stanley an investment bank said that it had reduced its estimate for growth to 5.8 percent from 6.3 percent this fiscal year. A research consultancy named Capital Economics also slashed its forecast to 6 percent from 7 percent. The other corporate lobby groups the Confederation of Indian Industry and Federation of Indian Chambers of Commerce and Industry have renewed their calls for economic reforms. Adi Godrej the President of CII said, “We have to get back on the track of reforms.”
Sajjan Jindal the Chairman of JSW Steel told the Economic Times, “This is truly a missed opportunity, at a time when the whole world is looking to invest in developing economies; internal issues have plagued our nation.” Though the government claims that it is trying to woo the foreign investors it is surprising to know the committee on trade and industry headed by the Prime Minister Manmohan Singh has just met twice in two years. The first meeting was a preliminary meeting where five sub-committees were set up on issues like skill development and financial inclusion and the second meeting was focused on the global crisis and inflation.
In a report by one of the U.K. newspapers the Indian economy was referred to as a “tortoise” which has been changed from the previous comparison of “elephant”. Leif Lybecker Eskesen the chief economist for India at HSBC said that India has turned into a “gasping elephant”. All these names like tortoise and gasping elephant is like downgrading the Indian economy but it’s not their fault as the GDP is running below everyone’s expectations.
Eswar Prasad an economist at the Brookings Institution and Cornell told The New York Times, “The latest growth numbers signal India’s deteriorating economic prospects and presage much worse to come as industrial output has stalled and investment is falling. These numbers reflect not just a loss of economic momentum but, far worse, a loss of confidence in the government’s ability to tackle the enormous short-term and long-term challenges to sustaining growth.”