New Delhi: Concerns have emerged over the true health of India’s economy. A former chief economic adviser has raised doubts about the pace of growth. He said that the recovery may not be as firm as it appears. Pressure from outside the country and stress within the system may slow momentum.
He highlighted several risks. Possible trade actions from the United States is a concern. Rising exports from China add strain on domestic markets. Stress on public finances continues to build.
Official data shows economic growth of 7.4 percent in the financial year ending in March. This marks a second straight year of the fastest global growth. Caution surrounds this figure. Measurement accuracy is a known issue. The inflation-adjustment tool used in GDP calculations appears unusually low. This raises questions about the headline number.
Clarity on the economy is limited at present. Signals that track current economic conditions point to easing strength across sectors. Nominal growth is also showing a softer trend over recent months. The overall direction and pace of the economy appear uncertain. Matching the present growth rate in the coming year would still count as a big outcome in a climate of global uncertainty.
Trade risks from the United States persist. High tariffs on Indian goods is in place. Prospects of a near-term trade deal look weak. The risk of higher tariff levels stays alive.
China’s trade approach adds another layer of pressure. Large export volumes find their way into developing markets. Domestic producers face added stress. Public finances also face tight conditions. Tax reductions under the goods and services tax (GST) have narrowed fiscal space.
Steps to regain momentum have also been outlined. Greater flexibility in currency policy could shield exporters from external shocks. Limited fiscal room increases the value of exchange-rate adjustment. A softer currency could ease pressure. The Reserve Bank of India appears cautious about allowing full flexibility. This approach calls for more review.
