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Structural reforms needed to spur growth: Report

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Mumbai, Aug 23 (IANS) Amid subdued consumption demand and concerns of an economic slowdown, a report by Kotak Institutional Equities has said that structural reforms would be major step for achieving higher GDP growth.

The report also said that the government’s role in the economy should be decreased to achieve economic growth.

"Investment-related reforms in manufacturing (sector) covering the various factors of production will be key for low-cost labour-intensive manufacturing and investment-related reforms in infrastructure covering areas of ownership of infrastructure assets and pricing of services will be important for greater role of private sector investment and more sustainable investment models," it said.

"There is over-reliance on government entities for investment in infrastructure, which results in lower-than-optimal investment rates given the government’s fiscal constraints."

The report observed that the current slowdown in the Indian economy does not seem to have many parallels in the past as economic growth has generally rebounded sharply after periods of macro-economic challenges.

"Also, the government had had more ammunition to deal with slow-downs while the current situation is complicated by (1) limited capability to do a broad-based fiscal stimulus and (2) low impact of the RBI’s monetary stimulus on interest rates. It may be time to consider structural reforms," it said

The government does not have much scope for meaningful fiscal stimulus but a well-directed stimulus program for housing will probably be the best use of limited fiscal capacity, the report said.

Stimulus programme in the housing sector would have a larger impact as it would lead to faster economic recovery given large linkages of housing with several sectors, and it would create construction-related jobs and improved cash flows of real estate developers may alleviate their current tight cash flows.

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