Happy days are here again, the gloomy days are over for Indian economy

By:Vandita Jadeja 2017-11-15

India’s GDP growth had slowed to 5.7 per cent in Q1, as goods and services tax and demonetization have impacted the economic activities and demand in the economy. The Reserve Bank of India has revised downwards the growth projections for FY18 from 7.3 per cent to 6.7 per cent which immediately led to discussions around the merits and demerits of the recent policy announcement.

However, the latest indicators in the second quarter results are all pointing towards green shoots emerging and indicating that the worst is behind us as the economy seems to be in recovery mode. This could indicate that the sense of gloom which prevailed earlier could soon fade away and boost the investor sentiment, lead to a rise in corporate earnings with buoyancy in demand recovery as the government plays its role by means of reforms like disinvestment, infrastructure push and bank recapitalization.

Private consumption had also declined post demonetization and GST and it has shown a healthy recovery. Auto sales data indicate a strong recovery with a growth of 10 percent and 23 percent in two and three wheeler sales, respectively in September indicating a pickup in rural demand. This trend is also visible in passenger vehicle and medium and heavy commercial vehicle segments which have shown a pickup in urban and business sentiments.

Trends of FMCG companies’ results also indicate a pickup in consumer demand with HUL registering a volume growth of 4% in the last quarter versus flat growth in the previous quarter. There should be an improved consumer demand with the government focus on rural spending, reasonable increase in MSP and normal monsoons in addition to the seventh pay commission. The reduction in prices by FMCG companies has benefitted consumer demand.

There is also an improvement in export numbers with double digit growth witnessed in the last two months. Global economic recovery has given a much needed tailwind to the export sector with capital goods export growth at 42% and pharma and chemical export growth at 25% recorded in September. Government initiatives like Make in India, Mudra scheme for funding microenterprise sectors are also playing a significant role in giving an impetus to the export sector.

One of the main pillars of the economy is credit growth and it has been languishing for some time due to the balance sheet problem India is facing. There has been a pickup in the bank nonfood credit to 7.2% in October which is mainly due to the growth in the retail space while industry credit growth continues to be lackluster. The overall credit growth has shown signs of improvement with a growth of 14.6% in outstanding bank credit, bonds and commercial papers as compared to 13.8% last year.

The recent decision by the Government to recapitalize PSU banks will also provide the much needed capital to banks which can be deployed as a credit to productive sectors in order to enhance their lending capacity. The move is expected to enable banks to extend about INR 6 trillion loans which can lead to capex revival and creation of jobs.

Policy measures like GST and demonetization have impacted the growth in previous quarters, the initiatives have also resulted in improved transparency, widening of tax base and formalization of the economy. These measures are expected to result in strong economic growth for a sustainable period and the steps have resulted in significant foreign flows in the last one year resulting in all time high foreign exchange reserves.

The government plans to invest INR 7 trillion over the next 5 years in the road sector which will boost growth and employment. The ‘Housing for all’ scheme is also expected to give a boost to the construction industry. In conclusion, the Indian economy is ready for a strong recovery in the coming quarters.

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