Accessibility links

Indian Economy Showing Signs of Recovery

  • Anjana Pasricha

An Indian woman plants rice saplings at a paddy field after monsoon rains on the outskirts of Puri, Orissa, Aug. 21, 2014.

An Indian woman plants rice saplings at a paddy field after monsoon rains on the outskirts of Puri, Orissa, Aug. 21, 2014.

India’s economy is showing signs of recovery with the rate of growth at its fastest pace in over two years. The government says it expects the trend to continue.

It was promises of reviving the sluggish economy that brought the right-wing government led by Prime Minister Narendra Modi to office three months ago. And latest economic numbers suggest those expectations are being met.

The 5.7 percent growth reported in the April to June quarter is the highest since 2012.

Economists said the coming months were likely to see even more robust growth.

Economist N.R. Bhanamurthy with the National Institute of Public Finance and Policy in New Delhi forecast a growth rate of more than six percent this year.

“Going forward I would say recovery in the investment, particualrly in the manufaturing sector, and at the same time sticking to the fiscal consolidation map should lead to higher investment and higher growth in the current financial year,” said Bhanamurthy.

The economic upswing is partly due to measures taken by the previous government to speed up projects that had gotten stuck in recent years. The slow down in investment had pulled growth rates down to less than five percent and turned the mood pessimistic.

But analysts said the new government, voted in on its business-friendly agenda three months ago, has boosted sentiment among domestic and foreign investors.

Since taking office in May, the government has raised foreign investment limits in the defense, insurance and railway sectors.

More importantly, it is promising to change the tough regulations of doing business in India, which have deterred both foreign and domestic investors.

India's Prime Minister Narendra Modi (L) shakes hands with chairman of Japan Business Federation (Keidanren) Sadayuki Sakakibara (R) during a luncheon organized by Keidanren in Tokyo, Sept. 1, 2014.

India's Prime Minister Narendra Modi (L) shakes hands with chairman of Japan Business Federation (Keidanren) Sadayuki Sakakibara (R) during a luncheon organized by Keidanren in Tokyo, Sept. 1, 2014.

On Monday, Prime Minister Narendra Modi, speaking to businessmen in Tokyo where he is on a visit, told Japanese buisinessmen that he wanted to replicate “Japanese-like efficiency” in India.

He said he was aware of the steps that were needed to be taken for ease of doing business and for simplification of policies.

Japan is among a host of countries looking at India with renewed interest amid widespread optimism that its economy is on the mend.

Finance Minister Arun Jaitley said policies initiated by the government would revive the economy.

“In the first quarter of this year, a 5.7 per cent growth rate is enouraging. With the long term impact of all the new initiatives setting in, I am sure the impact in the coming quarters would be much larger,” said Jaitley.

However, the new government has disappointed some economists who say it has yet to put in place bolder reforms in areas such as labor and tax laws, which are politically sensitive. Without these, they say, India may not be able to return to the levels of growth that made it one of the world’s fastest economies during the last decade.

XS
SM
MD
LG