Faster Recovery expected with strong macro-economy fundamentals

The Economic Times, in its series for The India Leadership Council, invited Mr. Arvind Subramanian, Indian Economist and Former Chief advisor to the GOI to address the leaders of various companies on India’s growth story so far, while charting a course for the country’s revival from its present slowdown.

Hope Amidst Decline

Speaking about the importance of India’s major growth engines – consumption, investments, trade and taxes – Mr. Subramanian noted that a decline had been observed in these sectors during the 2018-2019 period. The IIP (Index of Industrial Production), which is an index that details the growth of various sectors of the economy, is at -5%. But at the same time, he pointed out, there seems to be hope for recovery, with (newspaper) headlines saying India was on 4.5-5% growth, ADB talking of 5.1%, and the IMF and World Bank saying 6%. Tax collections for the first eight months were also up 3.5%.

A Look at the Past

Looking at the figures, Mr. Subramanian looked to a benchmark comparison point, 1991, when India witnessed a macro collapse. However, the situation now is very different, with the macroeconomy being “very stable”. He noted that India has a lot of foreign exchange, and there are no external threats.

Recovery Steps

While he did have some concerns about the lending that NBFCs had taken on in the real estate sector, he also noted that the government has begun taking steps to halt the decline. He mentioned that the IBC (Insolvency and Bankruptcy Code) is already in place and only needs to be kickstarted. Mr. Subramanian also said the government needed to work in tandem with the private sector for a fair amount of time to bring about these changes to reform, and strengthen the economy. He said the good thing that was happening is that the government is privatizing some public sector companies and hoped it would succeed in strengthening the IBC.

In conclusion

The slowdown in the economy is due to a host of factors- some within our grasp and some that cannot be controlled. However, the strength of the recovery will depend on the strength of the action we take. One suggestion from Mr. Subramanian was raising personal taxes and cutting corporate taxes. However, the most important steps point to the government taking actions to fix the financial sector and improving agriculture. His view was that these factors, combined with a pickup in the world economy, might be enough to get the Indian economy on track.