US doubts India's 7.5% growth, wants reforms to match rhetoric-The Total Investment & Insurance Solutions

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06 July 2016 

Doubting India's claim of a 7.5% growth, the economic diplomacy arm of the US State Department has said that the Indian government must pursue reforms to match the rhetoric even as key bills struggle to get past parliament.

"Ostensibly, India is one of the fastest growing countries in the world but the depressed investor sentiment suggests the approximately 7.5% growth rate may be overstated," said the Bureau of Economic and Business Affairs in its latest report. The Total Investment & Insurance Solutions

The comprehensive report took note of a range of initiatives that have been taken by the Narendra Modi government since May 2014, notably in opening up the economy to enhance Foreign Direct Investment (FDI), the "Make in India" initiative and removal of bureaucratic hurdles.

"However, the government has been slow to propose other economic reforms that would match its rhetoric, and many of the reforms it did propose have struggled to pass through parliament," it added in the India-related section of the report "Investment Climate Statements for 2016".

Giving examples, the report said the government failed to muster political support on the land acquisition bill in Parliament, all but ending its chance of passage in the near term, and still awaits the Opposition's nod in passing the Goods and Services Tax Bill (GST Bill). The Total Investment & Insurance Solutions

It also had a piece of advice for those dealing with India.

"India's political system is highly decentralised. Investors must be prepared to face varied political and economic conditions across India's states and union territories, including differences in the quality of governance, regulation, taxation, labour relations and education levels."

The report said this situation has resulted in many investors backing off somewhat from their once forward-leaning support of the Bharatiya Janata Party-led government. The Total Investment & Insurance Solutions

"Prime Minister Modi's courtship of multinationals to invest and 'Make in India' has not yet addressed long-standing hesitations over India's lack of effective IPR enforcement," the US Foreign Ministry report said in a reference to India's Intellectual Property Rights (IPR) regime, which has been a sore point in India-US trade relations. The Total Investment & Insurance Solutions

"The Modi government has been very willing to engage in discussions with the US government and US industry on IPR in 2015," it said.

Last month, the World Bank retained the 7.6% growth rate projection for India in the current fiscal. The country registered a 7.6% growth rate in 2015-16.

The US State Department questioning of the GDP figures now adds fresh fuel to the controversy in India around calculation of the national GDP under a new methodology unveiled by the Central Statistics Office last year.

The report also lauded the fact that "the monetary stewardship of Raghuram Rajan, the respected Governor General of the Reserve Bank of India, further boosted investor sentiment". The Total Investment & Insurance Solutions

Rajan has announced his intent to return to academia at the end of his tenure in early September. The Total Investment & Insurance Solutions