RUCHI BHATIA
March 7
INDIA'S 8%-PLUS GROWTH last quarter was driven by more than just one-off factors, chief economic adviser V Anantha Nageswaran said after economists pointed out that the data masked slowing underlying momentum. The surprise 8.4% surge in gross domestic product was largely due to base effects related to subsidies, which boosted the net indirect tax category, Nageswaran said in an interview on Thursday. Even so, growth of about 8% in the previous two quarters, and high frequency indicators are “pointing to the fact that it is not because of this one-off boost coming from indirect taxes” alone, he said.
“There is wunder lying and intrinsic momentum in the economy. ” The distortion in the GDP data — published just weeks before India heads to elections — was highlighted by several economists, who said it concealed a slowdown in activity. They pointed to gross value added, which excludes net indirect taxes, as a better measure of underlying momentum, showing a slowdown to 6.5% in the quarter.
India’s “optimal” GDP growth rateis 79%.but the “desirable” rate is 8%, Nageswaran said. Achieving that faster growth would requirea number of economic reforms, some of which are “low-hanging fruit, ”he said, such as implementing labour and land policies. That could “sustainably take us closer to 89%,” he said.
Nageswaran, a former banker who was appointed to his current post in 2022, said the government’s official growth forecast of 7.6% for the current fiscal year ending in March was probably too conservative. The forecast implies GDP would expand 5.9% in the current quarter, which is “unrealistic,” he said. Growth “will be higher than that,” he added.
His comments echo those of central bank governor Shakti anta Das, who said Wednesday growth will probably be close to 8% this fiscal year. The government’s focus on building physical and digital infrastructure in the past decade has increased the economy’s potential to grow at higher rates fora longer period, he said. Prime Minister Narendra Modi’s government has doubled infrastructure spending in the past three years, and has allocated about %11 trillion to the sector in the coming fiscal year.
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