By Swastika

AT the time when Global economy is feeling the aftershocks of the crisis trying to heal it's deep burnt in an urge to surge a turnaround in different economies across nations , India is no exception and is feeling the heat of it. The Indian economy has been undergoing a phase of crest and troughs since the global recession in 2008 thus showing a mixed growth pattern with bumps and bulls. In nearly five years since the financial crisis descended upon us, the international community has faced many challenges. Though the slowdown in Europe and the US has manifold impacts on the developing nations of the worlds but China and India have managed their ways and made their path in the journey of growth and resurgence even after that although the pace of growth has been affected and challenges have grown.

The Deputy Managing Director of International Monetary Fund Naoyuki Shinohara while addressing at the Federation of Indian Chambers of Commerce and Industry said that the oldest and largest business organization in India, the FICCI has played an important role in India's emergence onto the world stage, first as an independent nation and most recently as a leading economy. He gave his deep insight to the “Global Economic Prospects and the Implications for India.” The world is witnessing some of the crucial issue facing the world economy and in this scenario India is also encompassed in a time of difficult transition.

In the view to this he emphasised on need for policy challenges to be as important and vital in India as they are in Brussels, or Beijing, or Washington. Discussing about the economic outlook for this year he began with the broad trends with respect to special focus on Asia and India. It is quite interesting that he offered the IMF view of India's prospects, and perspectives on the challenges this country faces. The IMF's forecasts show the world economy strengthening. But we still are not seeing the growth needed to drive a sustainable global rebound. While financial markets have recovered, the real economy continues to lag meaning thereby that there is not enough growth to generate jobs for the millions who have fallen into unemployment over the past five years.

World growth was below 3 percent in the middle of 2012, but we are forecasting gradual strengthening over the course of the year to 3.25 percent. We are more optimistic about 2014, projecting 4 percent global growth. But this improvement masks significant disparities. We are experiencing a three-speed recovery. There are countries that are doing well, particularly emerging and developing economies. There are countries that are on the mend. Finally, there are countries that still have some distance to travel including the Euro Area and Japan.

Before discussing the outlook he reminded of India's extraordinary achievements which are well known in the world at large the emergence of a world class IT industry, the rapid growth of exports, and the development of a sophisticated financial sector. India has a strong voice in the global discussion of many key issues, including trade and climate change. Besides he also talked about achievements in the war against poverty has been very impressive due to which the share of the population living below the poverty line has fallen from 45 percent in 1994 to below 30 percent in 2010 as a result of which the total number of poor has declined from 407 million in 2005 to 356 million in 2010. India's tele communications network is the worlds second largest based on the total number of telephone users. Also, the government's plan to gradually implement direct cash transfers using the Unique Identification Number system is an impressive development that my colleagues at the Fund are watching closely. Its cutting-edge technology will improve the targeting of social programs as it approaches full enrollment in the next few years.

These successes highlight the gradual process of reform India has undergone during these years of rapid growth. Regulatory changes have been significant. For example, the government recently took the politically challenging step of raising diesel prices and imposing quantity limits on subsidized LPG. That will help shrink the budget deficit, narrow current account imbalances, and help the environment. Change is never easy in any country, and sometimes the democratic process can make the process even more difficult. So India deserves great credit.

All this should serve as a backdrop to the issues behind the current growth outlook. In a sense, India immediate prospects suggest that our construct of a “three speed recovery” may not adequately describe each country's experience. Its growth is strong by advanced country standards, but, as you know, the discussion here centers on a slowdown. The trend shows that the corporate investment began to fall in 2011 and now has dropped three percentage points as a share of GDP from pre-crisis levels and now has an impact on consumption and exports. IMF forecasted that India will see growth of 5.8 percent this fiscal year and 6.3 percent in 2014-15. Meanwhile, many analysts are scaling back their forecasts of potential GDP growth. We estimate that India can grow between 6 ¼ and 6 ¾ percent a year, down from closer to 8 percent two years ago.

The explanations for this slowdown can be attributed to three factors namely the global economy, cyclical policies, and structural bottlenecks. The global recovery is slow and uncertain, so there is less demand for Indian exports. But that alone does not explain the slowdown. The IMF has examined that Indian growth has slowed more than can be explained by the impact from abroad affected by slower growth in export markets during 2008 and 2009. But more important factor adding to this was financial contagion: trade and long-term credit dried up, equity prices fell, and the Indian economy paid the price. That is not happening this time.

The RBI has tightened monetary policy, and the budget deficit has been coming down. But while nominal interest rates are high, real rates are significantly lower because of India's high inflation. On the fiscal side, the budget deficit has been falling but slowly. While deficit reduction subtracts from demand, stimulus is being withdrawn more gradually than it was added during 2008-2009. The growth slowdown is too big to be explained by fiscal consolidation and monetary tightening leaving it with capacity constraints which are not new for India. The need for infrastructure investment is obvious .As investment in new roads, factories, ports, and energy has fallen, the speed limit of the Indian economy has come down too. Getting back to 8 percent growth will require addressing the investment problem, and that means getting companies investing again.

He focused on new current issue with capacity constraints. In the past, infrastructure may have operated at capacity, but new capacity was coming online. Even if regulations complicated matters, developers knew how to get roads built, railroads repaired, and port facilities expanded. But that appears to have changed in the last few years. Project approvals have become much more difficult because of the scandals related to big projects, increasingly complex and overlapping regulations, and intensified scrutiny of all projects. The slowdown in bureaucratic approvals is affecting road building, power plant construction, and even new factory approvals. In other words, the difficulties of the reform process are starting to have a negative impact on the economy.

This also has external ramifications. Capacity constraints mean that exports cannot keep up with demand. Demand for goods that cannot be produced domestically is being met with imports. India needs to increase power generation and distribution, and it needs to make better use of its large coal reserves but domestic coal has not been coming to the power plants fast enough, so imports have been rising resulting in a weaker trade balance that hurts both the rupee and the balance of payments.

There are other important steps to be taken. A new land acquisition bill would help companies and government entities to obtain sufficient land for new investment projects. Simpler labor market regulation would allow workers to move between companies more freely and encourage small companies to grow. And the Goods and Services Tax would streamline India's complicated tax system. These structural reforms would all help bring growth back to pre-crisis levels. He concluded on the note that India continues to prosper with the world economy returning to growth and stability in the near future. And so it is essential that India continues to play its role by generating the growth that helps attain that goal.