The Indian economy would seem to be growing satisfactorily as per statistical revisions coupled with increased coverage of data on GDP. The growth rate is expected to be 7.4% in 2014-15. This will be possible because of the economic recovery last year. It also augurs well for the coming budget. However, the Finance Ministry needs more evidence to buttress the claim that there has been healthy economic recovery. India’s statistical system is at par with the global and if the revised GDP data are to be relied on, Finance Minister Arun Jaitley cannot altogether ignore formidable challenges. First, the level of investment as a proportion of GDP has declined. Of course, manufacturing is in developing mode and will show a 6.8% growth this financial year. But Industry as a whole seems to be getting cold feet about stepping up investment. Second, monetary policy has been tight keeping interest rates high which is regarded as a disincentive to investment. Only recently, monetary policy has shown a reverse trend and Rajan has cut the bank rate. This belated step may enable the Modi Sarkar to trigger greater investment.
It has been indicated earlier that the budget should produce a cleaner and simpler tax system. That will positively be a spur to investment. An aggressive tax system leads to a spate of litigation and it is compounded by the complexity of laws. The direct tax system is within the purview of the Central budget. Welcome changes can be effected in it and that should be a priority concern. Increased growth rate is not a panacea for the economic malaise of the country. Industry needs to be encouraged to boost investment and build more and more factories.
