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India PM Modi calls in experts as economic growth flags

GDP growth slumps to 5.7% in April-June, the lowest in three years

Indian Prime Minister Narendra Modi, 3rd from right, at the new corporate office of ONGC in New Delhi during the launch of an electrification scheme on Monday (Photo by Press Information Bureau)

NEW DELHI -- With India's economic growth slowing sharply, Prime Minister Narendra Modi formed a panel of experts Monday to offer guidance on pressing economic concerns.

India's gross domestic product growth slumped to 5.7% in the April-June period, the lowest in three years, official data showed.

The slowdown was mainly due to the lingering impact of last November's surprise demonetization of high-value banknotes, and manufacturers trimming inventories ahead of a July 1 roll-out of a new goods and services tax.

Modi's new advisory council, the first since he became prime minister in May 2014, is expected to suggest ways to spur growth. The council will analyze issues referred to it by the prime minister, especially those of macroeconomic importance, and advise him accordingly.

The panel is expected to move swiftly, given that the Modi government has less than two years left in its tenure and is trying hard to revive the economy.

The five-member council will be headed by Bibek Debroy, a member of the government think tank Niti Aayog. The think tank's principal adviser, Ratan Watal, will be the council's secretary. It will also have three economists as part-time members -- Rathin Roy, Ashima Goyal and Surjit Bhalla.

The last such panel was headed by former Reserve Bank of India governor C. Rangarajan, who resigned after Singh's government lost power in 2014. 

India was the world's fastest growing major economy until recently. In the April-June period of 2016, the growth rate was 7.9%. In January-March this year it was 6.1%. 

On Friday, Modi's predecessor Manmohan Singh, said the demonetization exercise -- which drained 86% of currency, or 15.4 trillion rupees out of circulation -- was not required at all. 

On Nov. 8, Modi banned 500-rupee ($7.60) and 1,000-rupee notes in a sudden move to curb "black money," or untaxed wealth, corruption and counterfeit currency.

Changing economic environment

Finance Minister Arun Jaitley said Monday that the government is taking steps to improve the country's economic environment.

Most macroeconomic data in the last three and a half years have shown that the economy has been sounder than ever, except that for the most recent quarter, when GDP growth dipped, Jaitley told reporters after a national executive meeting of the ruling Bharatiya Janata Party.

"The services sector had actually improved in the period between April and June," he said, adding that manufacturing brought the GDP numbers down, mainly because of weak investment in the private sector, and inventory reduction ahead of the July 1 roll-out of the goods and services tax.

"Destocking results in higher sales, so the services went up. But you don't manufacture more because you want to wait for the new [GST] rate," the finance minister said. "Whatever steps are required to change that environment ... we are certainly in the process of addressing them."

The July 1 launch of the GST replaced over a dozen levies with one unified tax. Almost all goods and services are now subject to one of four tax rates -- 5%, 12%, 18% or 28%.

Electrification push

In the run-up to the BJP national executive meeting, local media speculated that Modi could announce a 400 billion-500 billion-rupee stimulus package to juice the economy.

Though no such package was announced, at another event, Modi launched a new 163.2 billion-rupee ($2.5 billion) electrification program to provide power to all households by December 2018, three months ahead of an earlier deadline of March 2019.

More than 40 million poor households in India still do not have electricity 70 years after the country's independence from Britain, Modi noted.

"It is sad and unfortunate that these 40 million poor families in India still have no access to electricity and are relying on candles and [kerosene] lanterns," Modi said.

Of the project's total outlays, 140.25 billion rupees have been earmarked for rural households and 22.95 billion rupees for urban ones. The prime minister said the money will bring "a monumental change" to the lives of the poor, who will get electricity for free.

The electrification scheme is likely to benefit companies such as Bharat Heavy Electricals, Larsen & Toubro and GE.

Opposition leaders have accused the government of being pro-business and anti-poor. But the electrification program for impoverished families is expected to help the BJP in its campaign for the 2019 general elections, in which it seeks a second term in power.

Modi also inaugurated the new corporate office of the state-run Oil and Natural Gas Corp., exhorting the company to develop an energy-efficient stove that would enable cooking with electricity. He asked ONGC to invite startups and youth to innovate in the field. 

In August 2016, ONGC launched a 1 billion-rupee startup fund to foster ideas related to the oil and gas sector. The prime minister called on the firm to use the fund to develop an electric stove as well.

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