There are areas where action to stimulate the Indian economy is “imperative”, a top advisor to the Indian finance ministry said
India must regain the trust of investors who have been battered in recent years by increasing prices, stifling bureaucracy, rising corruption and an economy that recently lost much of its former lustre, the country’s top economic advisor warned on Saturday.
Raghuram Rajan, chief economic advisor to the Indian finance ministry, told Emerging Markets he believed that economic growth in India could be invigorated quickly with the right range of measures.
“I’m absolutely sure that we can get back to [economic growth] in the high single digits,” Rajan said. “This is a 4,000-year-old country we’re talking about. These problems are redeemable, and the government is determined to return the economy [to robust health].”
He said that there were “huge” infrastructure and government projects that were tied up in bureaucracy. “We just need to get them un-stuck,” he said.
“We are creating a cabinet-level decision-making process that will in turn force ministries to move far more quickly on big projects. Corruption is being dealt with. It won’t be solved overnight, but transparency is increasing. Foreign direct investment is increasing. India is on the move again.”
But Rajan, who only moved into his current position on 10 August, has his hands full if he is to try to extricate India from its economic malaise. Until recently, GDP was bounding along: in the year to end-March 2011, economic growth topped 10%, according to official government figures.
But since then, the economy has slipped alarmingly, haunted by Europe’s woes, but also a slowdown in the country’s services sector, which includes its much-vaunted information technology giants. The International Monetary Fund recently downgraded its India full-year growth forecast to 4.9%, from 6.2% earlier.
Rajan admitted that there were areas where action to stimulate the economy was “imperative”. Some of those are being dealt with: New Delhi’s move in recent weeks to approve domestic operating licenses multi-brand retailers like Walmart is a step in the right direction, as is raising the stake that foreign insurers can buy in local insurance joint ventures to 49%, from 26% previously.
But much more needs to be done, Rajan said. “Of course we need to regain the trust of investors”, many of which have been spooked in recent months by sloughing capital markets, an unresponsive and an often business-unfriendly government.
New Delhi has done itself significant harm over its multi-billion-dollar tax dispute with Vodafone, a key player in the local telecommunications market. More of the same will hardly help the government’s aims of kick-starting foreign direct investment and boosting gross domestic product to the sort of levels enjoyed in the mid-2000s, analysts have said.
“The India story for next 15 or 20 years [will remain positive] so long as we do the right things,” Rajan added. “If we do that – getting people into the services sector, boosting investment into agriculture and manufacturing, fixing fiscal problems, creating new jobs, we can keep India growing at seven, eight, nine per cent for years. You don’t need rocket science for that to happen.”