According to Krishnamurthy V. Subramanian, Chief Economic Advisor (CEA), the Indian economy will witness a 7% growth in the current financial year due to the strong structural changes such as the implementation of GST, bankruptcy laws (Insolvency and Bankruptcy Code, 2016), the fiscal prudence carried out in the past five years, and the clean-up of nearly 3.5 lakh shell companies.
These reforms will eventually replace the present economic slowdown with higher consumption and investment. However, the effects of such changes will augment economic growth with a lag.
When asked about the duration of this lag, the CEA responded, “Typically the effect of investments on growth happens over varying cycles that could sometimes take even two years. The investment cycle had been coming down because both on demand and supply side, there are concerns due to the dual balance sheet problems and it is only now that the investments have started to pick up.”
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The government’s Central Statistics Office (CSO) trimmed its forecast to 7% from 7.2% this year as the economy had a slow growth of 6.6% in December last year. This is largely due to the balance sheet issues and over-leveraged positions in several companies. Also, the country has built-up excess capacity, the utilisation of which is still below 80%.
The Indian economy witnessed a growth of 8.2% in the last quarter of FY19. In the second quarter, this growth dropped to 7.1% and further to 6.6% in Q3.
In July this year, Krishnamurthy V. Subramanian will present his first Economic Survey. He said that the PMI (Purchasing Managers’ Index) in February was 54.3 points, which signals good growth and optimism. The investors should tap this opportunity in investing in firms.
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