Implementing GST and dismantling inter-state check posts are the most critical reforms needed for Indian manufacturing.
The potential gains of more efficient and reliable supply chains are enormous. Simply halving the delays due to road blocks, tolls and other stoppages could cut freight times by some 20-30 percent, and logistics costs by even more, as much as 30-40 percent. This would be tantamount to a gain in competitiveness of some 3-4 percent of net sales for key manufacturing sectors, helping India return to a path of high growth and enabling large-scale job creation.
According to the Update, a twice yearly report on the Indian economy and its prospects, India’s economic growth is expected to rise to 5.6 percent in FY15, followed by further acceleration to 6.4 percent and 7.0 percent in FY 2016 and FY 2017.
According to the Update, India’s longer term growth potential remains high due to favorable demographics, relatively high savings, recent policies and efforts to improve skills and education, and domestic market integration. Improved growth prospects in the US will support India’s merchandise and services exports, while stronger remittance inflows and declining oil prices are expected to support domestic demand.
Potential GDP growth is at 10%, so India is expected to be significantly underperforming relative to what India could be doing.
The projections could, however, face risks from external shocks, including financial market disruptions arising out of changes in monetary policy in high income countries, slower global growth, higher oil prices, and adverse investor sentiment arising out of geo-political tensions in the Middle East and Eastern Europe.
Domestically, the risks include challenges to energy supply and fiscal pressures from weak revenue collection in the short term, the Update said. However, risks could be mitigated to a large extent by focusing on reforms that help the manufacturing sector.