Arun Jaitley discusses ways to revive economic growth

Finance minister Arun Jaitley and his colleagues on Tuesday took stock of the economy and discussed specific efforts to revive growth that has decelerated to the slowest pace in three years.

The finance ministry will hold more inter-ministerial consultations and finalise a package of measures aimed at stimulating economic growth, officials present at the meeting said on condition of anonymity.

A presentation will then be made to Prime Minister Narendra Modi, who will take the final call, these officials said.

Tuesday’s meeting was attended by railway minister Piyush Goyal, commerce minister Suresh Prabhu and the secretaries of the finance, and commerce and industry ministries. The railway board chairman and representatives from the prime minister’s office and NITI Aayog were also in attendance.

Gross domestic product (GDP) growth slowed to 5.7% in the quarter ended June, the slowest in three years, from 6.1% in the preceding three months, sparking concern over the state of the economy.

The residual impact of the November invalidation of high-value bank notes and the July 1 implementation of the goods and services tax (GST) were seen as contributing factors.

One key focus of Tuesday’s meeting was to accelerate infrastructure spending. The railways ministry, which has been allocated a ?55,000 crore budget for 2017-18, has so far spent only ?10,068 crore, or 18% of the money allocated in the first four months (April-July) of the fiscal year.

Reviving economic growth and creating more jobs, promises that the ruling Bharatiya Janata Party made to come to power in 2014, are crucial as the party seeks re-election in 2019.

“I feel that the economy is recovering and quarter two will be much better than quarter one. Several of our businesses are showing much better results in quarter two than quarter one. Also the positive effects of GST are being felt and GDP growth in the second half of the year will be much better than the first half,” said Adi Godrej, chairman of Godrej Group.

To boost the economy in the short run, the government needs to “drive up consumer demand” by taking a series of steps including a reduction of fuel prices and cuts in the GST rates on consumer items, said Vinod Dasari , managing director at Ashok Leyland Ltd.

“It needs to increase investment by spending faster on infrastructure and defence for long term growth,” he added.

The government should push for a revival of stalled private projects and speed up public sector projects, said Ranen Banerjee, partner at PwC India.

“Reviving the stalled private projects will help in picking up of economic activities and positively impact the balance sheets of public sector banks,” Banerjee said.

Banerjee added that the government needs to address teething GST-related problems and should not let these impede growth.

“If economic growth does not pick up in the September quarter, the government may not have any option but to pump-prime the economy in the next budget. However, it should not send the signal of being fiscally profligate lest state governments start slipping from their fiscal discipline commitments,” he added.

State Bank of India, in a report published on September 19, said the government should consciously expand spending and the fiscal deficit without disturbing the borrowing math.

“We believe, with uncertainty regarding GST implementation and monetary policy support to growth not forthcoming it will not be prudent on the part of government to reduce spending as other growth drivers are missing,” it said.

The United Nations Conference on Trade and Development, in a recent report, said the Indian economy faces “serious downside risks” as the government’s demonetisation drive, GST and corporate deleveraging could accelerate the slowdown and make recovery difficult.

Shally Seth Mohile and Sapna Agarwal from Mumbai and Sahib Sharma contributed to this story.