India Inc suggests ways to reclaim 7% GDP growth
Pranab Mukherjee is addressing the seventh India Investment Forum in New York. Global investors still reeling from the aftershocks of a financial crisis are hanging on to every word of a gung-ho finance minister.
Mukherjee makes a fervent pitch for foreign investment, with the promise of a return to an average economic growth rate of 9%. Investment, private consumption and manufacturing are on a revival path, exports are surging, capital flows are picking up, as is business sentiment, the FM told investors.
Less than two years on, that scenario has gone spectacularly awry, as a soaring fiscal deficit, untamed inflation and uncertainty in the Euro zone have conspired to take the wind out of the India story.
A slowdown in agriculture, manufacturing and mining has caused India's gross domestic product (GDP) growth to sink to a nine-year low of 5.3% in the fourth quarter of fiscal 2012. Visions of double-digit growth-which looked a distinct reality when the economy conquered the 9% bastion in fiscal 2008-are now a pipe dream.
The story isn't over-not yet-but reactions from India Inc suggest the end may be not too far away. Furrowed brows are everywhere, from industry bodies (the CII has voiced its "deep concerns" at full volume) to international brokerages (the Indian GDP is "paying the price of a comatose government", screamed the headline of a recent CLSA report).
Economic growth of 9% and above is not worth fantasising about at this time, but there are CEOs who believe that 7% is, at a pinch, achievable. Here's their recipe to the government on what it needs to do to get there: 1) Create a favourable environment Before the onset of the global financial crisis, the Indian economy was on song because a number of factors came together swimmingly well.
"The political and economic situation was stable," says Baba Kalyani, chairman & managing director, Bharat Forge. All key macroeconomic indicators reflected an economy that was in good health.
Exports were rising and the current account deficit was at a manageable 1.3% in fiscal 2008 as against 4% last year. The investment climate was conducive, foreign capital was flowing in-both as direct and as portfolio investment-as business and consumer sentiment hit a peak.
Today, investors are conspicuous by their absence. The reasons for their apprehension include a series of ostensibly regressive measures, the biggest one being the amendment of tax rules with retrospective effect.
The short point is that the climate for investment needs to be made favourable once again. "We must have a facilitating environment to push investments in the last mile of completing projects," says Chanda Kochhar, CEO & MD of ICICI Bank.
In the nearer term, groundlevel execution of decision-making is more important than allowing foreign direct investment (FDI) in some sectors or introducing a goods & services tax (GST), she points out.
To be sure, Investments have been steadily dipping. Total investment (private and public), which was 26.2% of GDP in 2008, is expected to fall to 18.2% in fiscal 2013, according to a Morgan Stanley estimate. "Initiatives like single-window clearance are crucial to improve the image of our country as a business-friendly destination," adds SD Shibulal, CEO & MD, Infosys.