India’s 7.5% growth rate for 201617 overstated, says US
REPORT CARD Lauds RBI governor Rajan for monetary stewardship
The US said on Tuesday India’s growth rate target of 7.5% seemed “overstated” due to “depressed investor sentiment” stemming from its failure to implement crucial market reforms, but lauded Reserve Bank governor Raghuram Rajan for his “monetary stewardship”.
It noted Modi government’s failure to push through the land acquisition Bill and the Goods and Services Taxes Bill (GST) as the chief cause of disappointment for investors.
“Many investors (are) retreating slightly from their once forward-leaning support of the BJPled government”, a US state department report said, calling government “slow” to match “its rhetoric” on reforms.
The state department’s Bureau of Economic and Business Affairs prepares an annual report titled Investment Climate Statements.
This “depressed investor sentiment suggests the approximately 7.5% growth rate may be overstated”, added the report, which is part of state department’s annual guide for Americans on the investment climate around the world.
India expects to grow by 7-7.5% in 2016-17, according to the last Economic Survey and the World Bank and International Monetary Fund expect it to grow by 7.5% over the same period.
The US state department’s observation of a “depressed investor sentiment” should not come as a surprise, as it warned of investor discomfort even in its 2015 report. “Investors have begun to wonder about the government’s strategy,” it said then, arguing, using the same words, it was “slow to propose economic reforms that matched its rhetoric”.
The 2014 report, released a month after Prime Minister Narendra Modi took office, spoke of expectations compared to the UPA that had “allowed economic policy to drift”. “There are expectations that the new central government with a simple majority could steer economic policy, improve government transparency, and facilitate investment in manufacturing and infrastructure to stimulate growth and create jobs.”
The 2014 report had also noted with some satisfaction the “new leadership at the RBI” — Governor Raghuram Rajan — that had “improved policy transparency and helped restore confidence”.
The 2015 report was bullish about Rajan’s “continued monetary stewardship”, which it said, together with the advent of the BJP government, “made an immediate mark on investor sentiment”.
But a note of circumspection had crept in already when it said investors had begun wondering about the NDA government’s strategy given its inability to match its rhetoric.
As the government looks for replacement of Rajan, US State Department said: “The monetary stewardship of Raghuram Rajan, the respected governor of the Reserve Bank of India, further boosted investor sentiment”. It didn’t note that he was leaving.
Rajan said last month that he will return to academia when his term ends on September 4.