Signs of economic recovery despite of recent shocks

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Batteries: High Voltage Dreaming

To begin with, India has been one of the fastest growing economies in the world from past few years. We saw a whole new world of opportunities and development showcased to us as tremendous economic growth, in the path-breaking Liberalisation, Privatization and Globalization (LPG) policy we adopted in 1991. Since then, apart from a few blips, we have been on a high growth trajectory that was never seen before, and that too, at an average of around 6 percent year over year.

The growth rate has been based on the cumulative effect of reforms starting in 1991 being a key pillar to the achievements India Inc. has put on the world map. Being India, our problems too have been unique to its true sense Having the 7th largest landmass and catering to 2nd largest population of the world, the variables of our environment i.e. political, economic, environmental, social etc. have stood as testimonial to the changes we have adopted and braced. The stress on the basic infrastructure has been very high and has been in dire need of reforms and aid in order to support the tag of the ‘growth engine of the global economy’.

Hence, to keep the growth sustainable and organic, it is our necessity rather than a choice to keep building and integrating, modifying our infrastructure accordingly to reap the benefits on a long journey ahead.

Since 1991, apart from scaling new heights in overall development, we have also faced some big hurdles. Few of those hurdles are – The Bombay stock exchange blasts, Harshad Mehta Scam, IT bubble, Subprime crisis, Brexit, European crisis, US policies, demonetisation, etc.

In order to combat these and to prevent such incidences in future, we did a lot of regulatory and infrastructural changes such as – Service Tax Regulations, GST, RERA, Bankruptcy Code, Make in India, Digital India, NPAs clearing by banks etc.

Due to these inevitable reforms, it was obvious that the growth rate would take a hit and the financial markets will go into correction and then into consolidation. Since we are with globalisation, a lot of other market factors (macro-economic) also have an impact on us. In spite of all of this we have grown at 5.7% this quarter, which is still a very good number.

Now if we talk about recovery, yes, we are very much on track. But we need to watch out for some of the key global cues. First, let’s cover how we are on track.

Our economy is based on very strong fundamentals and even though one may accept the fact or not, the stringent controls have done us a lot of benefit. Let’s put the facts on the table.

Positive Impact of Government policies: -

This government has shown its intent for the much-needed fiscal reforms rather than monetary policy changes. This means the political will for radical steps and reforms in our economy is present. Make in India, focus on digital payments, Direct benefit through Jan-Dhan, total electrification of villages by 2022, increased air connectivity, push for banking reforms are the major fiscal changes taken under till now.

There has been a strong government spending in infrastructure development, acting both ways, as a cushion and a stimulus for growth. The CAD (current account deficit) is still under 3% as targeted by the government.

GST, one of the key reforms has just been implemented. Once the teething problems are looked into, the wide tax base covered under GST will give the much-needed boost for our $2 trillion economy.

The Industrial output has bounced back to 4.9% from 0.8% and it is at 5 months high. This is one of the major cues that our economy is gaining traction.

Increase in both; output and new orders helped the manufacturing sector remain in the expansion zone with the Purchasing Managers' Index (PMI) coming in at 51.2 in September 2017.

Forex Reserves are at an all-time high of $400 billion indicating towards stability in the economy. Recent legal and regulatory changes such as RERA, Bankruptcy Code, removing shell companies, IND AS, etc. have been ensuring that the growth stays organic and sustainable.

OECD, which tracks 45 countries, has given a review that the global economy is picking up momentum in most of the major economies, including India.

IMF report also suggests growth in India is forecasted to pick up further in 2017 and 2018, in line with the April 2017 forecast. While activity slowed down following demonetisation, growth for 2016––at 7.1 percent––was higher than anticipated due to strong government spending and data revisions that show stronger momentum in the first part of the year.

Given all these indicators and factors, the economy is on its progressive track and will attain a buoyant output and growth rate in the near future.

But a word of caution here. We need to watch out for these local (micro-economic) and global (macro-economic) cues to understand the direction of the growth.

Warning Indicators to the Economy

The Indian job market scenario is deteriorating and there hasn’t been any big reform in the job sector which still remains a major concern. As per Economic Survey reports, 2-3 lakh jobs are created every year but there are 12-13 million additional people entering the job market every year. Digitization is also a concern combined with job market woes. Thousands of jobs have been lost due to digitization.

Poor investment in private sector has also been stunting the growth. The investment in private sector is less than 27% of the total investment done in the country.

Unpredictable U.S. regulatory (H1 visas) and fiscal policies. These affect us as our high growing IT sector derives over 60% of revenues from US. Negotiations of post-Brexit arrangements, or geopolitical risks. Policy uncertainty remains at a high level and could well rise further.

Recent slowdown in China led by housing slowdown, capital flight stress, foreign exchange reserves at five-year low, standoff with India in Doklam, etc., are some of the factors to consider upon how the dragon will play its next move.

Continuous missile tests and invariable threats to US and allies of missile strikes despite of receiving sanctions from the United Nations, North Korea has been more unpredictable and a cause of concern for all the major economies. Any act of conflict could result in a full scale war causing more stress on the financial markets.

The OPEC decisions on oil production and supply is another concern to watch out for. Lower oil prices have also helped India to bring in big fiscal changes.

These are some of the key points which need to be watched out for.

Though it may seem that the negative sentiments are outweighing the positive sentiments about the market, overall there is a positive sentiment for the Indian economy ahead and it is still in list of favorable investment destination Globally !