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India’s Economic Growth Could Reach 8.5%

Via The Wall Street Journal : India Says Economic Growth Could Reach 8.5%. Projected GDP growth for fiscal year would surpass China’s

India’s Finance Ministry said Friday that the country’s economic growth could accelerate to as much as 8.5% in the coming fiscal year, which could make it the world’s fastest-growing large economy as China’s expansion continues to slow.

Officials cautioned, however, that recent changes in the way Indian-government statisticians estimate gross domestic product, which caused recent growth figures to be revised upward considerably, make it “difficult to objectively analyze” longer-term trends at present.

The forecast of between 8.1% and 8.5% GDP growth, presented in the ministry’s latest annual survey of economic conditions, represents a significant acceleration over the 7.4% growth expected for the current fiscal year, which ends March 31.

If borne out, the latest forecast would put India’s growth rate ahead of China’s for the first time since the 1990s. Economists expect China’s GDP to expand by 7% or slightly less this calendar year.

The Indian Finance Ministry wasn’t shy about making the comparison. On the cover of the two-volume economic survey released Friday is a chart of India’s growth plotted against China’s over the last few decades, with the two lines crossing in 2015 as India’s growth climbs and China’s slides.

But Arvind Subramanian, the ministry’s chief economic adviser, said: “The balance of evidence shows that India is still a recovering economy, not a surging economy that can be thought of as a tiger as yet.”

The economic survey said falling oil prices and Prime Minister Narendra Modi ’s commitment to economic overhauls have improved the country’s outlook despite uncertainties about interest rates in the U.S. and continuing troubles in the eurozone.

India is in a “sweet spot,” the report said: Inflation has eased, international investors are bullish on India and the government in New Delhi has a strong mandate for change.

If the Modi administration continues improving the business environment and reducing government interference in the prices of food, fuel and other basic goods, the survey said, India’s GDP eventually could experience double-digit growth. That would give the country more resources to help its poor and provide opportunities for its young, growing middle class.

Now is “a moment that comes ‘but rarely in history,’” Mr. Subramanian told reporters on Friday, quoting Jawaharlal Nehru, India’s first prime minister.

But doubts persist about India’s recently revised GDP figures, which form the basis for the new forecasts. After updating the base year and incorporating new data sources in January, India’s recent growth estimates were bumped up sharply, putting them at odds with other indicators of business and consumer activity, from imports to industrial production, that still show weakness.

For instance, in the 12 months that ended March 2014, a year in which the economy was verging on financial crisis, economic expansion was said to be 6.9% instead of 4.7% as previously estimated. The 7.4% growth expected this fiscal year was a similarly large jump from previous forecasts of about 5.5%.

Coming a day before Mr. Modi’s government unveils its spending and revenue plans for the next fiscal year, the economic survey appeared to temper expectations that the administration will use the budget as a platform to launch radical, far-reaching policy changes.

“Big bang reforms,” the survey said, are typically undertaken in the aftermath of crises, and rarely in robust democracies with checks and balances. “India today is not in crisis, and decision-making authority is vibrantly and frustratingly diffuse,” it noted.

The survey instead urged the government to pursue “a persistent, encompassing, and creative incrementalism,” while also taking “bold steps in a few areas that signal a decisive departure from the past.”

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