India’s economy could grow up to 8 percent this fiscal year if the government can undertake further reform, according to a senior analyst.
The economy is expected to regain momentum after a series of setbacks in 2015, with new measures under Prime Minister Narendra Modi, the Hong Kong Economic Journal reports, citing Mehul Sukkawala, senior director of S&P Global Rating.
“Parliament has been trying to pass a simplified goods and services tax and the government sees the importance of infrastructure spending,” Sukkawala said.
Also, he said foreign direct investment is key to India’s recovery.
India suffered a severe drought last year that curtailed economic growth.
Still, gross domestic product (GDP) is expected to have expanded 7.4 percent in the fiscal year to March 31.
With continuing reform and a more favorable climate, India could post 7.9 percent to 8 percent growth in the year to March 31, 2017, Sukkawala said.
He said Modi, then newly elected prime minister, struggled to push reform through parliament last year.
Now, his government is able to focus on policies that would attract foreign investment, including allowing foreign companies to own up to 49 percent of domestic insurers, Sukkawala said.
However, he said China’s economic slowdown, which is hurting global oil and commodity prices, will weigh on India’s heavy industries.
Some China-focused companies such as Tata Motor, which owns luxury vehicle brands Jaguar and Land Rover, are reeling from cooling demand.
But in general, the Indian economy is mainly domestically driven, making it less exposed to external turbulence, he said.
Sukkawala warned of deteriorating conditions in India’s state-owned companies.
These behemoths lag their peers in the private sector, despite access to better financing.
Also, he said state companies are being constrained by too much debt.
Sukkawala said there is “a lot of bureaucracy” in state-owned firms and their decision making is too slow.
He said their credit profiles are expected to weaken in the coming years and these companies will become increasingly dependent on government funding.
But unlike in China, India’s state sector is much smaller than the private sector, so its impact on the economy is not as pronounced, he said.
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