The recent slew of relatively better economic news is a relief that seems to have cheered the domestic market at a time when inclement weather plays party pooper. A favourable confluence of domestic economic indicators and forecast of an above-normal South-West monsoon this year lifted the Sensex to a 14 week high last week, despite concerns of persistent global stagflation. After nearly two years in power, the ruling NDA-II government’s poll promise of acche din appears somewhat plausible.
Of course it is possible that the current positive mood is simply due to market churn. It could also turn out that unless there’s a batch of very, very good news going forward, the market is going to digest the positivism, may be pull back a bit, and wait for more catalysts to move higher. However, recent RBI analysis of Company Master Data from the Ministry of Corporate Affairs seems to indicate that the Indian economy looks all set to rebound this year. Although the large-sized India Inc firms are stressed from being over leveraged and in deep debt, investment is starting to pick up through thousands of small domestic enterprises leading growth, partly funded with aide of venture capital in select service sectors. The weak inflation conditions coupled with election spending has also relaxed liquidity conditions in some states, more than is warranted by the recent repo rate cut, and the projected 7% plus GDP growth rate doesn’t look all that fictional any longer. The general macro-stability of the Indian economy has further accorded some degree of immunity to a fair number of shocks and the medium-term growth potential is now deemed achievable.
Sieving the proposals of a decidedly over-praised Budget, a section of experts has been arguing that the estimates on government receipts from taxes and disinvestment may well prove optimistic. That sentiment remains yet unchanged. In particular, some assumptions on sectoral growth, viz. that farmer’s incomes will double and grow at close to 15% annually, seems cruelly unrealistic given the past couple of year’s drought and the fact that the El Niño conditions are yet to weaken. That said, the government can rightfully list as achievements the comfortable current account and fiscal deficit conditions, albeit aided by the fall in global energy prices last year, and the fact that retail inflation has come down from 11% to below 5%, making room for interest rates to come down.
And while major structural reforms are yet to materialise, smaller initiatives launched last week such as a new platform that allows mobile-to-mobile transfers between any two bank accounts in India and the e-trading platform — National Agriculture Market or e-mandi — which proposes to integrate 585 regulated wholesale market or agriculture produce market committees (APMCs) under one electronic platform by March 2018 are continuing in an attempt to ease business conditions on ground. In absence of key reforms such as the new bankruptcy code and the GST law that are still works-in-progress, some technological developments are happening and making for a more, hopefully, reasonable life for a lot of people. These developments will surely add to the market feel-good sentiment, if only for a short while, but these reforms that reduce costs will have far reaching impact on small and agri-business sentiments in the medium term.
Clearly, non-export-oriented businesses are banking desperately on even tiny indicators of solace this year. A case in point being that subsequent to IMD forecasts that there’s a 50% probability that El Niño is going to weaken giving way to La Niña which is good for the Indian monsoon prospects, the board of India’s largest car maker Maruti has returned sales forecast presented by the management, asking it to come up with an upgrade.
But the domestic businesses are one with the experts in acknowledging that sustaining strong growth in the medium term will require labour market reforms and dismantling infrastructure bottlenecks, especially in the power sector. As the recent RBI monetary policy statement on the economy showed, current changes in economic conditions and the government’s ability to press ahead with its reforms agenda could poise India for a “leap in production”. Fortunately the government and its policymakers realises this.
Suparna Karmakar, Independent Professional (Trade and Regulatory Policy), specialises in international trade and open economy macroeconomics. Views expressed herein are personal. She can be reached at firstname.lastname@example.org
Suparna Karmakar, Independent Professional (Trade and Regulatory Policy), specialises in international trade and open economy macroeconomics. Views expressed herein are personal. She can be reached email@example.com