India could clock a GDP growth of 7 percent in the medium term if the country is able to arrest the fall in net exports, according to DK Srivastava, Chief Policy Advisor at EY India.
Speaking at an experts’ roundtable organised by Moneycontrol on December 1, Srivastava said, “India is slated to do better than most of its peers and could grow at 6.3 to 6.5 percent in the medium term. If it can reduce the negative exports to zero, then India can even grow at 7 percent in the medium term.”
Net exports is the total value of exported goods and services, less the value of imported goods and services. India currently imports more than it exports.
Data released by the National Statistical Office on November 30 showed that India's GDP had grown at a robust 7.6 percent in the second quarter, sharply higher than market expectations of 6.8 percent and the Reserve Bank of India's (RBI) forecast of 6.5 percent.
The government and the RBI's full-year GDP growth forecast is 6.5 percent.
Srivastava added that the negative contribution of net exports to India’s growth story given the lukewarm demand for goods from major trading partners is of concern. “My sense is that exports is going to remain negative, and domestic demand has to drive growth,” he added.
India's merchandise trade deficit rose to a record high in October, propelled by a 95 percent increase in gold imports, the commerce ministry said on November 15. According to latest data, the goods trade deficit increased to $31.46 billion in October from $26.3 billion in the same month last year. For April-October, merchandise exports were down 7 percent year-on-year at $244.89 billion.
India's exports are facing hurdles from high global interest rates, which is affecting demand for Indian goods. New Delhi has been looking to tap less-explored regions to boost outbound shipments.
Vivek Kumar, Economist at QuantEco Research, termed the Q2 GDP growth rate a “wow” number, attributing the roaring pace of recovery to frontloading of capital expenditure by the government.
Kumar, who was also part of the roundtable, pointed out concerns around India’s demand recovery as revealed by the latest GDP figures, even as he acknowledged the robust headline number.
“Private consumption has slowed down, there also concerns on the external front, which have been lingering for some quarters now. On the supply side, the agriculture sector has posted a very weak performance, and services have been slowing down as well,” Kumar said.
Growth in private final consumption expenditure (PFCE) nearly halved to 3.1 percent in Q2, from 6 percent in Q1. Another disappointment was the agriculture sector, which grew a mere 1.2 percent in July-September, its slowest expansion in four and a half years.
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