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India economy on mend, will hit deficit goal – finance minister Economists say six-percent-plus growth may be achievable this year

 NEW DELHI, Aug 30, (AFP): India’s fastest growth in over two years shows the economy is recovering, Finance Minister Arun Jaitley said Saturday, adding the robust expansion would help the government meet its ambitious fiscal deficit target. India’s economy grew by a forecast-beating 5.7 percent in the first financial quarter, its best pace since early 2012, according to official data Friday, as the election win of the Bharatiya Janata Party in May spurred business confidence. The right-wing government’s moves to accelerate bureaucratic decision-making and make it easier to do business are already paying dividends, Jaitley said.

“With the long-term impact of all these new initiatives setting in, I’m sure the impact in coming (financial) quarters will be much larger,” Jaitley told reporters in New Delhi. India’s economy posted two years of sub-five percent growth, staggering under high interest rates to curb stubborn inflation, a weaker global economic backdrop and a fall in foreign investment as corruption scandals embroiled the previous Congress government. The performance marked India’s longest slowdown in a quarter-century. But Jaitley forecast growth this financial year to March 2015 would pick up to 5.7-5.9 percent, despite weak annual monsoon rains that are vital to the farm sector, after the economy grew by 4.7 percent last year. Some economists say six-percent-plus growth may be achievable this year in light of the quarterly figures after earlier forecasting around five-to-5.5 percent expansion.
 
Growth
Economists say India needs at least eight to nine percent growth to create jobs for its ballooning youth population. Jaitley also said he was far more confident of reaching a fiscal deficit target for this financial year of 4.1 percent of gross domestic product from 4.5 percent the previous year. The deficit target inherited from the Congress government had been called a poison chalice by some economists with weak tax revenues and high government subsidy spending make the goal tough to achieve. But stronger growth makes it easier for the government to realise its promise of slimming the budget deficit — the gap between spending and revenues — to a seven-year low.
 
“With the first-quarter (growth) results, it (the deficit goal) is something that’s certainly achievable,” Jaitley said. India’s new Prime Minister Narendra Modi left Saturday for a trip to Japan aimed at strengthening ties with counterpart Shinzo Abe and boosting trade between Asia’s second and third largest economies. The two leaders, both right-wing nationalists elected on a pledge to revive their countries’ economies, also share an interest in shoring up regional alliances to counter an increasingly assertive China.
 
Before leaving India, the 63-year-old premier said he was confident that his five-day visit would “write a new chapter” in bilateral relations with Japan in areas including defence, nuclear energy and infrastructure. “We will explore how Japan can associate itself productively with my vision of inclusive development in India, including the transformation of India’s manufacturing, infrastructure, energy and social sectors,” he said in a statement. It is Modi’s first bilateral visit outside South Asia since taking office, which he says signals “the high priority that Japan receives in our foreign and economic policies.”
 
Modi and Abe will meet privately in the historic city of Kyoto on Saturday before holding official talks in Tokyo. Modi was initially scheduled to travel to Tokyo in early July, but altered his plans to be in India for his new government’s first budget session since its landslide election victory in May. Both men are seen as strong leaders who have championed deregulation to kickstart their countries’ flagging economies. Modi added that he would try to cultivate deeper defence ties with Abe at a time when both nations are embroiled in territorial disputes with China.

 

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