The Indian economy is unlikely to recover from the current slump in the near future, at least until the 2014 general elections as growth continues to be hampered by weak governance, lack of reforms and policy paralysis, Capital Economics Senior Global Economist Andrew Kenningham said Wednesday.
Capital economist said that risks to even its own forecast of 6 percent growth this year and next are increasingly to the downside, though the Asian country is not facing an imminent balance of payments or fiscal crisis.
According to the economist, the government's inability to pass legislation to liberalize foreign direct investment in retail, insurance and airline sectors, and to facilitate investment in mining have affected the economy adversely. Other factors that contributed to the slump are the failure to raise prices of diesel and other fuels to contain the fiscal cost of subsidies, and to take proper decision about public sector investments.
In addition, the government's backtracking on various proposals, including long-delayed price hikes for railway tickets and reforms to the coal sector, as well as wrong policy decisions like the one to impose tax on overseas merger and acquisition activity related to companies based in India, have adversely affected business confidence, the economist noted.
India's GDP growth slowed sharply to 5.3 percent in the first quarter from 9 percent a year earlier, reflecting a sharp deterioration in economic performance. The slowdown was led mainly by a significant weakness in investment growth.
The country's budget deficit rose to 5.9 percent GDP last fiscal year, while the shortfall in the current account widened to 3.7 percent, in line with the weakening of the GDP growth.
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