India can look forward to better growth prospects in the coming year with rise in domestic consumption and rural demand, says C Rangarajan, former RBI Governor and Chairman, Madras School of Economics.

Addressing The India Finance Forum 2016, organised by the Confederation of Indian Industry, Rangarajan said India witnessed good rainfall this year from the southwest monsoon and it would result in increased agricultural production.

Better farm output

“There will be 6-7 per cent increase in agricultural produce and 3 per cent rise in value-added agricultural products compared to last year,” he said.“This will increase the food supply and raw materials. Rural demand for goods is likely to pick up.”

In terms of demand, though consumption of durable goods witnessed 6.3 per cent growth between April and June, demand for non-durable goods did not pick up. Implementation of pay commission recommendations, which will take effect in September, will help in demand pick-up in the second half of the year. Though the country is not likely to expect major corporate investments and new projects, which have been on the decline, Rangarajan said the coming year will see companies making better utilisation of current resources. External demand, especially from advanced economies, is likely to go down.

In order to improve exports, Rangarajan said, India should focus more on emerging economies where there is a growing demand and reduce dependence on developed countries such as the US.

While implementation of reforms like real estate regulation and GST are step in the right direction, Rangarajan said it will take sometime to understand the impact. “These are enabling legislations that will heighten the growth,” he added.

Rangarajan said, “For India to graduate to middle-income country, we should get back to the growth rate of 8-9 per cent like in 2005-06 and 2010-11. We have achieved this in the past and we have the potential to achieve it now.”

Demonetisation

Referring to demonetisation, Rangarajan said that though it would curb transactions that are not on records, it might not prevent future accumulation of money.

“Demonetisation might cause short-term disruption in cash-based economy like retail,” he said and added that it would encourage people to move towards cashless transactions.

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