"All the top political players want to put right policies, but they are not being able to," said Kaushik Basu, who steps down from his current position later this month.
While conceding that the growth figures for the fiscal ended March 2012 were “extremely disappointing” and a "source of concern", Basu said he was hopeful that growth would hit the 7.6 per cent mark in the current fiscal.
Attributing the current slowdown to inflation, slow decision-making and global scenario, Basu said that "When the global turmoil subsides, India has a chance to be in the driver's seat."
"The medium and long term prospects for India are very good for India," he said, adding that savings and investment rate is healthy in India.
Last week, India’s GDP growth for fiscal 2012 came in below expectations at 6.5 per cent. The growth rate for the March quarter was even more disappointing at a measly 5.3 per cent, well under expectations of 6.1 per cent, and the lowest quarterly rate of growth in nine years, according to Thomson Reuters data.
The poor growth rate has come as a disappointment for both the government as well as industry and investors, who had been hoping that India would be able to weather the global slowdown like it did after the financial crisis of 2008. While the 6.5 per cent growth rate is far more than what most developed nations are experiencing, it is way below the 8.4 per cent the previous two years.
The Indian economy has been facing stiff headwinds from almost every direction -- inflation is relatively high at 7.23 per cent in April, a cause of concern to the Reserve Bank of India, whose priority it is to keep inflation in check. The rupee has falled to all-time lows, hitting a record bottom of 56.52 on May 31, and driving up the cost of imports and, consequently, the trade deficit.
To keep inflation down, the RBI has imposed a tight-money fiscal policy for the better part of two years. However, the tight liquidity has created a credit crunch for private enterprise, leading to a postponement of private investments that has slowed growth.
To address liquidity concerns, the central bank cut the cash reserve ratio, or the portion of deposits that banks must keep with it, in January and March this year. It finally announced a larger-than-expected 50 basis point interest rate cut in April. However, it cautioned at the time that it had limited room for more rate cuts for the rest of the fiscal, given the high inflation and fiscal deficit.
On June 4, however, RBI deputy governor Subir Gokarn hinted that there might be some “elbow room” for another rate cut in light of slowing economic growth and falling oil prices. The RBI’s mid-quarterly policy review is scheduled for June 18.