India has the ability to grow at 8.5% a year: Subramanian
CEASPEAK Country needs to address twin problems of weak demand and leveraged corporate balance sheets
India has the ability to realise its economic growth potential of 8.5% per year, chief economicadvisor(CEA)Arvind Subramanian said in an interview,layingdowntwocaveatsfor it to do so. This is presaged on India overcoming challenges posed by weak demand and the twin balance sheet problem of highly leveraged corporate entities and bad-loan ridden banks, Subramanian said.
“Andheretherecapitalisation ofthepublicsectorbanksthatthe Centrehasrecentlyannouncedis a very critical step forward,” he said, a day after Moody’s Investors Service on Friday upgraded India’s sovereign rating for the first time in 14 years.
Earlier,Subramanianpointed out, the government and the Reserve Bank of India (RBI) had undertaken a rejig of the institutionalframeworkforbankruptcy resolution.
The cleaning up of corporate balance sheets would revive investment demand and healthier banks would stoke a similar pick-up in credit offtake.
TheCEA,however,cautioned that this has to be followed up withsomehard-nosedreforminitiativesinbankingreform.“Here shrinking the fundamentally unviablebanks,ensuring/creating risk assessmentcapability in the PSBs (public sector banks), and bringing in more majority private sector ownership will be
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terribly important reforms,” he said.
According to Subramanian, the roll-out of the GoodsandServices Tax (GST) had initiated a very welcome recast of the federal polity of India and should serveasatemplatetoaddressthe overhang of development challenges. “I believe that the future ofIndialiesinthevirulentspread of cooperative and competitive federalism with the GST as the harbinger,” he said.
Inthis,hebelievestheleadcan be played by the government thinktankNitiAyog,successorto thePlanning Commission. “The NitiAayogcanbeforalldevelopmentissueswhattheGSTCouncil hasbecometoindirecttaxes.”
Referring to the recent GST Council meeting in Guwahati, Subramanian said the big messagewastheeasingofthecompliance burden which had been beginning to disrupt the supply chains in the economy.
“A committee led by GSTN (GST Network) chairman Ajay Bhushan Pandey will review everything relating to formsand the return filing frequencytosee howthesystemcanbemadesimplerandeasierforeveryone.Alot of simplification is still possible.”
AccordingtoSubramanian,it was only a matter of time before there was convergence of rates intothreeslabsandcommodities like land are brought under the purview of the GST.