Even as the BJP government led by Prime Minister Narendra Modi has claimed that the country’s economy will bounce back again, noted American economist Steve Hanke has said that India will “struggle” to achieve 5 per cent GDP growth in 2020 as the significant deceleration in past few quarters was largely owing to credit squeeze which is a cyclical problem.
This comes on the heels of the Monetary Policy Committee of the Reserve Bank of India (RBI) decreasing its GDP growth forecast for the current financial year 2019-20 to 5 per cent from 6.1 per cent in October, while maintaining an “accommodative” policy stance.
Hanke, who currently teaches applied economics at Johns Hopkins University (USA), pointed out that India experienced an unsustainable credit boom, and now the chickens are coming to roost with a massive pile of non-performing loans piled up, primarily at the state-owned banks.
“The slowdown in India is related to a credit squeeze, which is a cyclical problem – not a structural problem… As a result, India will struggle to make a GDP growth rate of 5 per cent in 2020,” he said.
He also noted that India is already highly protectionist.
India, which till recently was hailed as the world’s fastest-growing major economy, has seen growth rate decline to a six-year low of 4.5 per cent in the September quarter of 2019-20. This has largely been attributed to the slowdown in investment that has now broadened into consumption, driven by financial stress among rural households and weak job creation.
Hanke, who had served on former US President Ronald Reagan’s Council of Economic Advisers further said that Modi government has failed to make any big economic reforms.
The economist opined that Modi government seems to have little interest in making tough and required economic reforms. “Instead, Modi government has focus on two things that are destabilising and potentially explosive: ethnicity and religion,” he observed.
“This is a deadly cocktail. Indeed, many believe that under Modi, India is already being transformed from the ‘world’s largest democracy’ into the ‘world’s largest police state’,” the eminent economist, who is also a senior fellow and director of the Troubled Currencies Project at the Cato Institute in Washington said.
Amid worsening economic crisis, Prime Minister Narendra Modi had said that Indian economy would bounce back again with much vigour and strength.
While making the statement at the centenary event of industry chamber Assocham, Modi cited macro economic data from previous governments to show the pattern.
Modi said that GDP growth in one of the quarters in previous government had plummeted to 3.5 per cent in one of the quarters during the previous Congress-led UPA regime with headline consumer price inflation hovering at 9.4 per cent, core inflation at 7.3 per cent and wholesale inflation at 5.2 per cent while the fiscal deficit had widened to 5.6 per cent of the GDP.
India’s GDP fell over six-year low in July-September quarter of the current fiscal to 4.5 per cent, drawing flak from the opposition parties.
(With PTI inputs)