Indian FM sets out measures to fuel economic rebound

India’s Ministry of Finance is making big efforts to revive the country’s stagnating economy, with measures to front-load infrastructure spending and boost consumption. But experts warn that it will take many more tough reforms to get India back to its heyday of strong growth.

  • By Rashmi Kumar
  • 18 Oct 2019
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After slowing in the first two quarters of the fiscal year, which began in April, growth is projected to slump to 6% in 2019, according to the World Bank, from 6.8% last fiscal year.

A combination of corporate and regulatory uncertainty, weak income growth, especially in rural industries, a fall in consumption and immense pressure on the financial sector have all taken their toll on the world’s largest democracy.

The estimated GDP growth for the quarter to June shook the Ministry of Finance, coming in at just 5.5%.

The government has not been sitting still, however.

“To boost consumption, we have said that public expenditure for infrastructure will be clearly front-loaded,” said Nirmala Sitharaman, India’s minister of finance. “We said in the budget that about 100 lakh crores [$1.4tr] will be spent over the next five years, but this year itself, we are willing to spend a proportionate amount.

“Similarly, to increase money in the hands of people so consumption can increase, I’ve also requested all the public sector banks, together with their partners, to reach out to the villages and all the districts and extend every kind of credit they could want,” she added.

Financial focus

While the government has taken some steps towards jumpstarting its ailing economy, it is not nearly enough, according to Ranil Salgado, India mission chief at the International Monetary Fund. He said the priority for the government was to improve the financial sector.

India’s banks and non-bank financial companies have faced great turmoil in the past year, triggered by defaults among the non-banks, fraud and governance issues at state-owned banks, and hefty non-performing loans.

Salgado told GlobalMarkets that the government had recognised the issues and was trying to resolve concerns about rising bad assets and the way public sector banks are run.

“The government has tried some things, but we think even more is needed to improve operational efficiencies, to improve risk management on how the public sector banks lend loans, and to make sure those are done on a purely commercial basis,” he said. “The government also needs to make sure to remain under control of its own finances. We are focused on not just the central government deficit, but also focused on overall public sector borrowing, which is higher than household borrowing.”

  • By Rashmi Kumar
  • 18 Oct 2019

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