India beats China on GDP growth in 2015; may grow 7-7.5% in 2016

Hailed as "the bright spot" in a gloomier global economy, India outpaced China as the world's fastest growing economy in 2015 and is expected to clock 7 to 7.5% growth in the new year provided the reform momentum continues and the business environment improves.

Finance Minister Arun Jaitley says that subdued global economy and moderate private sector investment will continue to pose challenges, while his top priorities for the new year include rolling out the long-delayed Goods and Services Tax (GST), rationalising direct taxes, ensuring further ease of doing business and putting more money for social and physical infrastructure.

While the need for further growth remain continued to be underlined by the experts as well as the policymakers as a key requirement for India to maintain its growth momentum, World Bank's Chief Economist Kaushik Basu is confident that India can continue to top the charts with the fastest growth among all major economies.

Expecting India to grow at 7 to 7.5% in 2016, Basu said, "India will still be the leader among major economies. Not only in 2015, but we expect India to lead that chart in 2016 as well."

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It will still remain off the targeted growth rate of 8 to 10% in the foreseeable future unless the reforms momentum shifts to a much faster gear.

Going forward, Jaitley will have a tough time in sticking to the fiscal roadmap (3.5% of GDP in 2016-17), while taking care of additional outgo towards 7th Pay Commission award and One Rank One Pension (OROP) for retired defence personnel.

For the current financial year ending in March, the latest estimates peg the Gross Domestic Product (GDP) growth rate at 7 to 7.5%, which will be significantly lower than 8.1 to 8.5% predicted by the government in February 2015.

Although the year began with a lot of promise, the growth rate could not pick up as much as expected, mainly because of faltering global economy, decline in exports, deficient rains, and an inability of the government to push big-ticket reforms like GST and land acquisition law.

India's economic growth still accelerated to 7.4% in the July-September quarter, overtaking China as the world's fastest growing major economy, on pick up in manufacturing, mining and services sectors. Multilateral lending agency International Monetary Fund (IMF) termed India as a 'bright spot' in otherwise slowing global economy.  

The 1.25% reduction in key interest rate by the Reserve Bank of India (RBI) in 2015, coupled with a host of steps taken by the government to improve the ease of doing business, is likely to give a push to the economy. 

In 2015, the economy has been a beneficiary of a huge meltdown in crude oil prices, giving a great elbow room to the government to keep its finances in shape in a year, which otherwise witnessed subdued domestic demand and quite a sluggish external market.

While exports were bruised and kept declining for the entire year, private consumption within the domestic market received a cushion from the falling auto fuel bills.

Jaitley said that rolling out GST regime is "certainly" doable in 2016 and he was in "continuous touch" with the Congress in a bid to persuade them to cooperate in Rajya Sabha for passing the Constitution amendment bill for the new indirect tax regime.  

"I hope that in the next session (of Parliament), the GST will make headway," he told PTI.

Looking back at 2015, Jaitley said India has been the bright spot with growth prospects of 7 to 7.5% despite global slowdown and adversities, and expressed optimism that the growth rate which is "quite good" will improve further in the months to come.

Confederation of Indian Industry (CII) Director General Chandrajit Banerjee said that 2015 is coming to an end with some commendable achievements for the Indian economy. During the year, the growth momentum picked up, inflation climbed down and the twin deficits remained in control, he said.

"India was able to gain from the decline in international prices of oil and other commodities. This helped the turn-around in the economy," he said.

In the mid-year economic analysis tabled in Parliament, the Finance Ministry said the economy has consolidated the gains achieved in resolving macro economic stability from the beginning of the last fiscal. 

"Given the challenges of real GDP measurement, we estimate that real GDP for the year as a whole will lie in the 7 to 7.5% range. Consumer Price Index (CPI)  also known as retail inflation is likely to be within the RBI's target of about 6%," the Mid-Year Economic Analysis 2015-16 tabled in Parliament said.