NEW DELHI: Finance minister Arun Jaitley on Tuesday said India’s economy could expand 8 percent to 8.5 percent in 2016 to 2017, faster than the earlier estimate of 7.5 percent, if forecasts of normal monsoon rainfall prove correct.
The India Meteorological Department last week projected monsoon rainfall this year at 106 percent of the long-term average after two consecutive years of below-normal rainfall in many parts of the country.
At a meeting with institutional investors in New York, organized by Citigroup Inc., Jaitley, however, cautioned about some potential risks to growth.
The risks highlighted by Jaitley include global headwinds that may hurt demand for exports, high oil prices and the June-September monsoon belying forecasts of normal rainfall, Citibank NA, a unit of Citigroup, said in a note.
“However, the government doesn’t see $50 (per barrel) oil price as a significant problem. In the event oil prices go up, the main beneficiaries thus far (consumers, oil marketing companies and fiscal) will need to surrender part of the benefit,” Citibank said.
After falling below $30 per barrel in January for the first time in 12 years, crude oil prices have bounced back to above $40 per barrel. Brent crude, the international benchmark, last traded at $43.76 per barrel, up 85 cents.
A collapse in the price of crude has helped reduce India’s trade deficit and keep the fiscal deficit in check.
Data released by the Central Statistics Office in February projected a growth rate of 7.6 percent in 2015-16 against the government’s more modest expectation of 7-percent to 7.5-percent growth.
Giving its own take, Citibank said recent macro data indicate a reversal of soft third-quarter data in 2015-16 and support its view that a gradual cyclical recovery will push gross domestic product (GDP) growth to 7.7 percent in 2016 to 2017.
“Delayed salary hikes in the public sector are a risk to our consumption forecast but hopes of ‘normal’ monsoon bode well for rural demand. Consolidating fiscal might not be able to support public capex enough but some private-activity indicators are turning a corner.
Overall, India’s relative macro outperformance continues in a difficult global environment. Stability worries recede with fiscal and inflation under control,” it said.
In his interaction with investors, Jaitley said he expects to table the bankruptcy code bill in the second part of the budget session, which resumes on April 25.
The bill is currently before a joint parliamentary committee that is expected to submit its report shortly. Jaitley said he does not expect any major opposition to the bill.
“GST (goods and services tax) has been cleared in the lower House and the numbers are shaping up in favor of the bill for passage in the upper House,” Jaitley was cited as saying by the Citibank note.
On consolidation of the banking industry and stake sales in public sector banks, Jaitley said the government will look at reducing its stake in state-run banks to 52 percent, once the financial health of the banks is restored.
“Also, the FM does not believe that the current political climate in India is ready for government to reduce ownership in PSU (public-sector undertaking) banks to below 51 percent, as an amendment to current banking act will need to be passed,” the Citibank note said.
India’s banks are weighed down by non-performing assets (NPAs)—the result of an economic downturn and delayed regulatory approvals that made it difficult for many corporate borrowe rs to repay debt.
Listed banks added nearly Rs 1 trillion in bad loans in the December quarter, amounting to a 29 percent increase in the stock of gross NPAs from the September quarter. Gross NPAs of 39 listed banks surged to Rs 4.38 trillion for the quarter ended 31 December 2015 from Rs.3.4 trillion at the end of September, according to data collated by Capitaline.
Jaitley mentioned that bad loans with public sector banks are largely attributable to a handful of sectors such as steel, power, infrastructure, textile and sugar industries. He said the government intends to tackle the problems on a sectoral basis.
“Moreover, the functioning of the PSU banks has improved with top-level selection being more transparent. Bank reforms include professional board and management, and arm’s length dealing with the government,” Jaitley said.
Separately, at an event jointly organized by the Confederation of Indian Industry and Asia Society Policy Institute in New York, Jaitley said structural changes underway in India would place the economy on a stronger footing.
“India has moved from being in a state of policy paralysis to the economic bright spot of the world,” a finance ministry statement quoted him as saying.