The worst is not behind us in terms of falling GDP, said members of a panel that discussed 'Disrupting The Slowdown' in BT Mind Rush. "We are not seeing a bottoming out of GDP. There is a need to stop denying that there is a slowdown. This government takes too long to accept that there is a problem. This denial is causing the problem and also causing confusion," said Mahesh Vyas, CEO, CMIE.
"It is not right to say that the government is in denial," countered Jay Panda, a politician who supports the BJP-led NDA government. He said the government has been taking steps to counter the slowdown. Take, for example, the cut in corporate tax rates, he said.
"The RBI has responded by lowering interest rates," he added.
Ashima Goyal, a member of the PMEAC, said this is the time of healing, listening and getting feedback. "We went through a time of disruption. We saw tightening in all directions from fighting corruption and formalisation of the economy," said Goyal. "The economy is going through structural changes. Indian economy is very diverse. There is so much happening. The immediate cause of slowdown is the NBFC crisis. The liquidity tightening in 2018 also impacted growth," she said.
FULL COVERAGE:MindRush 2019
Samiran Chakraborty, Chief Economist, Citibank India, says policy measures show results with a lag. Interest rate and corporate tax cuts would shows results with a lag. "We get a little bit impatient, sometimes," said Chakraborty. He, however, said the last four-five slowdowns were due to supply-side shocks. The current slowdown is demand side.
"We are not used to demand side disruptions," he said. "Policy measures do not have an immediate impact. So far, no enthusiastic large investments have been announced by industry," said Vyas. "I don't think we are seeing a bottoming out. The most important sign has to be investment picking up, which is not happening. The investment slowdown has slowed down consumption, which is kicking back to people not spending," said Vyas.
Soumya Kanti Ghosh, Group Chief Economic Advisor, SBI, said there are some green shoots. "There is a marginal growth in credit. The stock markets are also seeing inflows. The global economy is also not looking that bad. The worst might be over," said Ghosh. He, however, said a lot of uncertainties are impacting the economy. "We saw surprises in oil, interest rates, global growth rates," said Ghosh.
"If you look at foreign investments, there are significant milestones. FDI has been rising," Panda said. "The biggest structural change in the economy was GST. GST collections are up. This may be one indicator that the bottoming out has already happened," he said. He added investments got impacted because of the big scandals in coal and spectrum. The scandal opened up the rot in the banking system.
"If you take a longer view point, India will overtake Japan as the third largest economy in the next decade. The short and medium term will have issues," said Panda. "We will see turnaround in GDP in the coming two-three quarters," said Panda, adding that the banks didn't transmit lower interest rates to final borrowers. "We need to look why they need such a high spread," said Panda. Panda blamed experts for not dropping interest rates, which impacted small and medium companies. "Sometimes, too much expertise is harmful to the economy," he said.
On the government's target of $5 trillion economy in the next five years, Goyal said there is a need for 12 per cent nominal growth to reach the figure. "In the past, we have seen positive switches. If sentiment changes, the switch can happen," said Goyal. Vyas's answer was a big no, though he added that: "Mathematicaly, it is possible. We need to do certain things right."
"The two preconditions to grow at 8 per cent growth are 10 per cent investment growth and 3 per cent productivity growth. There is a 95 per cent probability mark to achieve it," said Chakraborty. Panda said economic growth rates are not linear. "I think it is important to set an inspirational milestone. We have done it in the ease of doing business," he added.