India's 7.5 per cent growth rate may be overstated: US

Washington

Highly appreciative of the series of economic reforms, in particular streamlining bureaucratic decision making and raising FDI limits in certain sectors, US State Department in a report said yesterday, the Modi government has been slow to propose other economic reforms that would match its rhetoric.

Noting that many of the reforms it did propose have struggled to pass through Parliament, the report "Investment Climate Statements for 2016" said that this has resulted in many investors retreating slightly from their once forward-leaning support of the BJP-led government.

For example, the government failed to muster sufficient political support on a land acquisition bill in Parliament—all but ending its chance of passage in the near term—and is still negotiating with opposition parties the details of a Goods and Services Tax Bill, which if not watered down in negotiations, could streamline India's convoluted tax structure and provide an immediate boost to GDP.

"Ostensibly, India is one of the fastest growing countries in the world, but this depressed investor sentiment suggests the approximately 7.5 per cent growth rate may be overstated,” said the report produced by the Bureau of Economic and Business Affairs of the State Department.

There are few quick fixes to the structural impediments, poor regulatory environment, tax and policy uncertainty, infrastructure bottlenecks, localization requirements, restrictions in many services sectors, and massive shortages of electricity that hinder India's economic growth potential, it said.

Recognising that the gains from a massive, positive terms-of-trade shock due to lower oil prices that India has benefited from may not be repeated in the current global economic environment, the Finance Ministry has slightly reduced the official growth outlook for next year, it said.