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Growth down, but there won’t be recession ever: Sitharaman

NEW DELHI, Nov 27: Finance Minister Nirmala Sitharaman on Wednesday acknowledged that the economic growth may have slowed a bit but refused to call it a recession and then asserted that the country will never face recession.

“If you are looking at the economy with a discerning view, you see that growth may have come down but it is not a recession yet, it will not be a recession ever,” Sitharaman told the Rajya Sabha in her reply to questions on the economic situation of the country.

“Thirty-two steps taken to revive growth in economy are bearing fruits,” she said.

Sitharaman pointed out that country’s real Gross Domestic Product (GDP) growth was at 6.4 per cent at the end of 2009-2014, but rose to 7.5 per cent between 2014 and 2019.

Dissatisfied with her response, Opposition MPs walked out of the Rajya Sabha during her reply.

India’s GDP decelerated to the slowest pace in 25 quarters in the June quarter, growing by only 5% as a downturn in household consumption took its toll on key sectors. It marked the fifth straight quarterly decline in growth — the first time since June 1997 that such a prolonged slump has been recorded.

The government has at various times referred to the state of the economy as a passing phase and has pointed out that India remains the fastest economy in the world.

Earlier this month, Moody’s Investors Service cut India’s economic growth forecast for current year to 5.6 per cent from the previous estimate of 5.8 per cent saying GDP slowdown is lasting longer than previously expected.

The country’s Index of Industrial Production (IIP) has contracted for two consecutive months now. Annual contraction in IIP was 1.4% in August and 4.3% in September. For the quarter ending September, IIP has contracted by 0.4% on an annual basis.

In September, former prime minister Manmohan Singh warned that the economy was “in the midst of a prolonged slowdown” because of “all-round mismanagement by the Modi government” and it had not yet recovered from the “man-made blunders” of demonetisation and the “hastily implemented” Goods and Services Tax (GST).

Moody’s cuts India outlook cut to negative

NEW DELHI, Nov 8: A day after Prime Minister Narendra Modi claimed that the fundamentals of the economy remain strong, rating agency Moody’s Investor Service on Friday changed its outlook for India’s sovereign rating (Baa2) from stable to negative, saying that the domestic economic downturn could be structural.

The agency’s action does not amount to a rating downgrade, but comes as a caution against policy inaction. Moody’s credit rating of Baa2, the second-lowest investment grade score, is better than those of other agencies, such as S&P and Fitch, who have assigned the lowest investment grade to India with a stable outlook.

Countering Moody’s views, the Union finance ministry in a statement said that India’s potential growth rate remains unchanged, as evident from the assessment by the International Monetary Fund (IMF) and other multilateral organizations that continue to hold a positive outlook on India.

“The government has undertaken a series of financial sector and other reforms to strengthen the economy as a whole. Government of India has also proactively taken policy decisions in response to the global slowdown. These measures would lead to a positive outlook on India and would attract capital flows and stimulate investments," the statement added.

India has often criticized the methodology followed by rating agencies. A finance ministry official, requesting anonymity, said while Moody’s had upgraded India’s upward growth cycle in 2017, the change in outlook within two years seems to be a knee-jerk reaction. “In the next two years, India should be back on trend growth," he added.

Moody’s said India’s potential gross domestic product (GDP) growth and job creation will remain constrained unless reforms are advanced to directly reduce restrictions on the productivity of labour and land, stimulate private sector investment, and sustainably strengthen the financial sector.

“The prospects of further reforms that would support business investment and growth at high levels, and significantly broaden the narrow tax base, have diminished," it added.

Moody’s said while government measures to support the economy should help reduce the depth and duration of India’s growth slowdown, the prolonged financial stress among rural households, weak job creation and, more recently, a credit crunch among non-bank financial institutions, have increased the probability of a more entrenched slowdown.

“If nominal GDP growth does not return to high rates, Moody’s expects that the government will face very significant constraints in narrowing the general government budget deficit and preventing a rise in the debt burden," it said.

Speaking at the Global Investors’ Meet in Dharamshala on Thursday, Modi said that in today’s global scenario, if India has stood firmly, it is because it has not allowed the fundamentals of the economy to be weakened.

“We have constantly maintained our commitment on macro-economy and have abided by fiscal discipline. Today, when global economic activity has come down to 3%, India is growing at more than 5%. Recent reports suggest that in coming months, India will grow at a faster pace. Our intention is genuine, as well as sensitive. There is firmness in our decisions and intentions," Modi said.

India’s economy had decelerated to a six-year low to 5% in the June quarter, forcing most international and domestic forecasters to cut their GDP projections close to, or below, 6% for 2019-20. The Centre has undertaken a series of reforms, including cutting corporate tax rates, to spur an investment-led growth. However, it has so far desisted from announcing a large fiscal stimulus package to boost slowing consumption, which was at an 18-quarter low in June. On Wednesday, the cabinet cleared a ₹25,000 crore package to revive stalled housing projects to boost the ailing real estate sector.

The rating agency said although these measures, including policy rate cuts by the Reserve Bank of India, will provide support to the economy, they are unlikely to restore productivity and real GDP growth to previous rates.

Moody’s said its Baa2 rating balances the country’s credit strengths, including its large and diverse economy and stable domestic financing base for government debt, against its principal challenges, such as high government debt, weak social and physical infrastructure, and fragile financial sector.

The rating agency said the drivers of the economic deceleration were many and primarily domestic. “In the context of a prolonged period of weak investment, private consumption has slowed, driven by financial stress among rural households and weak job creation," it added.

 

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