US says India's 7.5% growth rate may be overstated

'Pace of economic reforms is slow'

 India’s 7.5% growth rate may be “overstated”, the US said, underlining that the Modi government has been “slow” in proposing economic reforms to match its “rhetoric”.

Appreciating the series of economic reforms, especially streamlining bureaucratic decision-making and raising FDI limits in certain sectors, the US State Department in a report, however, said the Narendra Modi government has been slow to propose other economic reforms that would match its rhetoric, and many of the reforms it did propose have struggled to pass through Parliament.

This has resulted in many investors retreating slightly from their once forward-leaning support of the BJP-led government, said the report “Investment Climate Statements for 2016”, released by the Bureau of Economic and Business Affairs on Tuesday.

“For example, the government failed to muster sufficient political support on a land acquisition bill in Parliament — all but ending its chance of passage in the near term — and is still negotiating with opposition parties the details of a Goods and Services Tax Bill, which if not watered down in negotiations, could streamline India’s convoluted tax structure and provide an immediate boost to GDP,” the report said.

“Ostensibly, India is one of the fastest growing countries in the world, but this depressed investor sentiment suggests that the approximately 7.5% growth rate may be overstated,” the report said.

There are a few quick fixes to the structural impediments, poor regulatory environment, tax and policy uncertainty, infrastructure bottlenecks, localisation requirements, restrictions in many services sectors, and massive shortages of electricity that hinder growth potential, it said.

Recognising that the gains from a massive, positive terms-of-trade shock due to lower oil prices that India has benefited from may not be repeated in the current global economic environment, the finance ministry has slightly reduced the official growth outlook, it said.

The analysis

Modi government ‘slow’ to match rhetoric in economic reforms
Lauds efforts taken in raising FDI limits
Many reforms struggle to pass through Parliament
Massive shortage of electricity hinder India’s economic growth