India’s booming economy is growing slower than some have predicted – with even the country’s Prime Minister predicting the expected 8% increase in GDP is unlikely to happen.
Premier Manmohan Singh reckons GDP for this financial year will stick around 5.7% -5.9% mark, which is the lowest level since 2002.
Falling exports are mainly blamed for the lacklustre performance.
Singh also flagged a number of economic challenges facing the nation, and forecast 8% increase in GDP was probably unattainable.
Stuttering growth has prompted the government to pledge the end of ‘business-as-usual policies’ because they are failing to stimulate growth at the level required to lift the country in to the ranks of middle income economies.
Low income country
As a result, new financial measures are in the pipeline, including raising the subsidised price of diesel, overhauling the tax system and opening the retail and other sectors to foreign buyers.
Critics want the government to bring about reform quicker, approve more infrastructure projects and cut subsidies to reduce the fiscal deficit.
Without changes, they warn, India’s GDP will hover around the 5% – 5.5% mark.
The economy has grown at less than 6% for three straight quarters, which is damaging for a country that needs growth of above 8% to create jobs for a fast-growing population.
Before the global economic meltdown in 2008, India registered GDP growth in double digits.
The prime minister said: “People should not forget that we are still a low income country and to become a middle income country we will need 20 years of rapid growth.”
The downturn in GDP is also making funding flagship welfare programmes difficult for the government – which are seen as crucial for winning popularity in the upcoming national elections.
India has cut GDP targets for the next five years although the 8% target remains in place.
However, the country’s ambitions are also hampered by budget deficits and inflation running at more than 7%.
These twin deficits have led to warnings from credit rating agency Standard and Poor that India may lose any investment-grade credit rating.
Opening the economy to foreign investment may help boost growth, so the government has created a special panel to speed infrastructure investment to revive what is Asia’s third largest economy.
Political commentators are also pointing to next year’s election to create tension within the country as fringe parties seek to exploit the poor performance of the economy and put forward policies which will damage the economy still further.