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Last updated: 22 Dec, 2015  

India.9.Thmb.jpg Mid-year review: Reform must go faster

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Bikky Khosla | 22 Dec, 2015
The Mid-Year Economic Review for 2015-16 tabled in Parliament last week gives a mixed picture of the economy. It says macroeconomic stability has improved considerably and so the economy is now in a better position to absorb adverse external shocks, such as the recent US Fed hike. On the negative side, the improvement in growth has been uneven. Private consumption and public investment played a key role in pushing growth, but private sector investment and exports have remained dull. In other words, only two out of four main economic cylinders are firing, thereby offering a tough challenge to the economy.

Given the dull investment scenario, the report urges the government to push public investment and reassess the fiscal consolidation target. It is true that the Centre should not obsess over fiscal deficit target, but I think measures like widening of subsidy reforms, better planning on divestment and strategic sale of government shares in PSUs can go a long way in mobilizing resources for public investment. The report also raises concern over inflation and borrowing costs. I think it is not the right time to lower the target on inflation of which we have gained some control only recently, but at the same time finding a solution to the problem of high borrowing costs is a must to help industrial recovery. Also, the government's focus, as pointed out by the report, should be on supply side reforms to revive private investment.      

On exports, which have declined for 12 straight months -- much worse than the decline during the global slowdown of 2008-09 --  the report expects some improvement next year. It says, "We find that this proxy for India's export demand declined from 3.0 percent in 2014 to 2.8 percent in 2015, which is consistent with the decline in India's non-oil exports in 2015. The data indicate that this demand will rise back to 3.0 percent next year, implying that the adverse export shock suffered this year could be reversed next year." The decline is attributed to decrease in global demand, which is true to a great extent, but our policy makers should not miss the point that such a situation demands enhanced support to the sector.

There is no denial of the fact that the economy has held on its own amid difficult challenges. Today, inflation has moderated, CAD is at a comfortable level, forex reserves position is robust, the rupee is stable, and so on. Also, the Centre is doing a lot to push reforms despite facing strong political resistance. But still it seems growth is picking up at a slower pace than expected. A recent study shows that only 50 percent of the economy is improving, and that even mainly due to softer oil prices, and not much because of government action. The economic review looks like reflecting similar challenges.

I invite your opinions.
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Reforms must go faster
A.Kumar | Thu Dec 24 14:21:00 2015
Although the government is trying to push the make in India concept still State and Central Govt. Agencies are importing from other countries in spite of there being Indian Companies manufacturing the same products. Recently 7 sites of Grain Storage Silos of 50000 Tonnes each in Punjab was awarded to MySilo of Turkey. The main reasons domestic suppliers could not compete is the high costs of substandard quality steel produced in India compared to cheaper and high quality steel in the International market. The Government is protecting the Domestic PSU steel industry by imposing additional customers duties on imported steel. This has resulted in higher borrowing and manufacturing costs to the local SME Sector resulting in loss of domestic sales and uncompetitive prices in the international market. The need of the hour is to allow free import of raw material at prevailing international market prices to bring down inflation and compel the domestic PSU steel manufacturers to improve productivity and reduce costs to survive. Plus the high level of corruption in Govt departments needs to be curbed because of which the exchequre is loosing out on inflows because of fraudulent practices.

Reform must go faster
Ravindrra Paatil | Wed Dec 23 09:59:02 2015
You have correctly said improvement in the macroeconomic stability is primarily attributable to the crashing of prices of crude oils & not due to any government action. Government needs to bring reforms faster otherwise we feel that mandate is wasted.

High time for import of Crude
A V Chandran | Wed Dec 23 08:57:07 2015
Ignore balance of trade as it is high time for import of Crude on macro terms in view of its benefit to build internal economic health to the Nation as the crude price stands continuously decreased for the last 15 months resulting macro excess revenue to the Nation. This could be examined as this import could not be stopped at this stage. Once crude price is in the abnormal increase import must have a limitation in comparison to exports to establish positive balance of trade. Am I right?

Mid-year review: Reform must go faster
A.V. Chandran | Wed Dec 23 08:38:36 2015
Economic status of the country is very sound comparing Exports and Imports resulting decrease in balance of trade whereas macro margin on import of Crude alone contributed abnormal economic growth with reference to excess revenue and corresponding yields in view of corresponding less distribution to consumers for the last more than 15 months. In short internal economic support of the country is very sound whereas it is a divided sharing between Central Govt and Oil Companies. This could be examined by virtue of views and reviews. You can even examine one rupee decrease in crude rate per ltr will contribute excess revenue of Rs.1 Billion per week. Am I right?

Indian Economy
Franco Paul | Wed Dec 23 05:23:36 2015
If You have seen NDTV show with Dr.Roy.Mr.Rajanand Mr.Sunil.It was said that the GDP forecast by Gov was all wrong and figures where all wrong. The economy is worst. We Import maximum from China .Its true what China has India does not have for example the Tools and machines etc To give the world the supply which it needs. we ourselves import from China.Hope things change. The above article its purely because of the oil prices down and India's major balance sheet is on the oil status.

High cost economy
Srivathsan | Wed Dec 23 01:10:36 2015
There are three main factors affecting the product cost, productivity,and global competition. In the first place the high cost of borrowing,secondly the the velocity of circulation of money( no mandate on sakal payment)coupled with harassment attitude or litigation attitude of government babus on existing running industries. If these are addressed there could be reduction cost by at least 20 to 25% paving way for increased competition in international market and hence more internal activity.

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