Slowdown only cyclical, India's growth potential not lost: Chief Economic Advisor

Subramanian said that there was, needless to say, a slowdown in the economy but it needs to be assessed whether it was structural or cyclical in nature. India’s GDP growth in Q1 of the current financial year, fell to a 6-year low of 5%, while Q2 s...

The economic slowdown which India is facing at present is only cyclical in nature, and the country has not lost its growth potential, which signifies that the economy will bounce back, Chief Economic Advisor K Subramanian said.

Subramanian said that there was, needless to say, a slowdown in the economy but it needs to be assessed whether it was structural or cyclical in nature.

India’s GDP growth in Q1 of the current financial year, fell to a 6-year low of 5%, while Q2 slowed down further to 4.5%.

The Reserve Bank of India has also lowered its GDP forecast for 2019-20 from 6.1% to 5%.

“My take is that this is a lot more on the cyclical side, because there has been no change in the demographics, there has been no change in the demand in the medium term and the ability of companies to supply,” he said at the FICCI young leaders summit here on Monday.

“and if anything, we are now doing a lot of reforms, and reforms enhance the productivity of the economy,” he added.

He said that the potential growth rate of the country was unaltered, the reason why the economy will come back on track, he said, without indicating a time period, however.

“As we showed clearly in the economic survey that for an economy like India, it is actually investment, especially private investment that is the key driver of economic growth,” he said.

He said that there was a well thought-out agenda behind implementation of the reforms that the government was introducing.

“So the steps we are taking, be it the corporate tax rate cut, the code on wages and industrial relations, is trying to create a more favourable environment for investment, which is what we require for sustained growth,” he said.

“The laws of economics are quite strong and what basically takes us down, also brings us up,” he added.

Finance minister Nirmala Sitharaman, in November this year said that while the growth rate had come down, there was no fear of recession.

Sitharaman had in September announced corporate tax rate cut from an effective 35% (including surcharges and cesses) to an effective 25.17% while the rate for new manufacturing companies reduced to 15% from 25%.

The CEA also said that the government was not complacent of what was needed to be done, continuous stakeholder discussions are being held to see what recuperative measures could be further taken.