US Department of State raises doubt over India’s 7.6% growth rate

NEW DELHI: India’s 7.6% growth may be overstated and the government has been slow on some of the reforms it had promised, the US Department of State has said while noting that the Narendra Modi administration has given priority to economic growth to deliver on its election promises.

The ‘Investment Climate Statements for 2016’ released on Tuesday lauded “monetary stewardship of (Reserve Bank of India governor) Raghuram Rajan”, saying it has further boosted investor sentiment. The report by the department’s Bureau of Economic and Business Affairs said the 2014 election was a turning point that brought in the NDA government, which won on a plank of economic growth.

“The Modi government has prioritised economic growth to fulfil its electoral promises and to address the Indian electorate’s high expectations,” the report said while flagging key economic reforms.

Streamlining bureaucratic decision-making, raising foreign direct investment limits in certain sectors like defence and railways, Make in India initiative to improve manufacturing and measures to improve ease of doing business are some reforms the report referred to before pointing to lack of progress in others.

“However, the government has been slow to propose other economic reforms that would match its rhetoric, and many of the reforms it did propose have struggled to pass through Parliament,” the report said.

It pointed to the government’s failure to muster sufficient political support on a land acquisition bill in Parliament and ongoing attempts to build consensus over the Goods and Services Tax (GST) Bill.

“This has resulted in many investors retreating slightly from their once forward-leaning support of the BJP-led government,” the report said while using it as an argument to questions India’s 7.6% growth in 2015-16, the highest among the big economies.

“Ostensibly, India is one of the fastest growing countries in the world, but this depressed investor sentiment suggests the approximately 7.5% growth rate may be overstated,” it said, wading into a debate over the GDP numbers that started after the statistics department shifted to a new method of calculating national income.

The new method saw growth restated to 6.9% in 2013-14 from 5% estimated initially. The growth has since been high. Many experts have questioned the numbers, pointing to lacklustre industrial growth in support.

The report said India faces “structural impediments, poor regulatory environment, tax and policy uncertainty, infrastructure bottlenecks, localisation requirements, restrictions in many services sectors, and massive shortages of electricity” that prevent it from realising its growth potential.