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CRISIL report hails Modi govt, but says reforms are key

Abhishek Parashar | Updated on: 10 February 2017, 1:49 IST

Praising the Narendra Modi government's performance on the economic front during the past two years, rating agency CRISIL has said, in a report released on 11 July, that the reforms and attempts to fix structural shortcomings, will further boost India's economic growth in both the short and long terms.

The agency released a report on the Indian economy titled 'Choosing trend over cycle'. It seeks to evaluate the quality of economic growth under the Modi regime.

The report hails the Modi government for not giving in to populism while framing its economic policies. It further adds that the government has refrained from boosting short-term cyclical growth through fiscal and monetary stimuli. It highlights the government efforts to improve growth by plugging the gaps in the system and moving ahead with structural reforms.

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CRISIL predicts the Indian economy to grow at 7.9 percent during the current fiscal year as compared to 7.6 percent in the previous year. However, it warns a bad monsoon might hamper the growth rate, especially in view of the two-year long drought and unseasonal downpour in March 2015, which adversely affected the growth. It is worth mentioning that the meteorological department has predicted a favourable monsoon this season.

According to CRISIL, the government can either push the economic cycle through monetary and fiscal policy measures, or it can bolster long-term sustainable growth by implementing reforms.

Noting that low crude oil prices have helped economic growth, the report states that Modi government has aimed to improve the management of spending while increasing infrastructure investment and keeping the fiscal deficit under check. The monetary policy has also concentrated on controlling inflation, it says.

The report further elaborates how Indian economic growth is not based on rampant credit creation, unlike China. The domestic growth rate has averaged 9.8 percent in the last two years, the report observes.

Referring to reform initiatives in power and banking sectors, CRISIL acknowledges a lot of work still remains to be done in this regard. It mentions passing of Insolvency & Bankruptcy Code-2016 and Aadhar Bill as major achievements of the government.

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The new Insolvency & Bankruptcy Code will help to expedite the cases of bankruptcy while shielding shareholders from big losses. Whereas, the Aadhar Bill will help better targeting of resources for the subsidy, rural wages and pensions.

"The focus on the quality of growth and structural reforms may not yield immediate results. But, it will help increase India's growth rate in the longer haul and it will not be a cyclical growth," says CRISIL's Chief Economist Dharmakirti Joshi.

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First published: 12 July 2016, 9:27 IST
 
Abhishek Parashar @abhishekiimc

Chief Sub-editor at Catch Hindi. He has been associated with Press Trust of India, Business Standard and The Economic Times.