By DK Aggarwal
The Indian economy has shown sustained strong growth as major reforms undertaken over the past few years to support growth in the economy are beginning to show results. After sending most stressed companies for resolution under the new Indian Bankruptcy Code, the government has also focused on a major recapitalisation package to strengthen public sector banks.
The asset quality cycle is stabilising following the massive recognition of problem loans and their gradual resolution and provisioning. Bank credit growth rose to its highest in more than four years to hit 14.40 per cent for the fortnight ending October 12, 2018.
Meanwhile, consumption demand continues to recover from the twin shocks of note ban and GST. Corporate India is seeing an earnings rebound, as more than two-thirds of the Nifty50 companies either have met or beat the average estimate in September quarter.
Going forward, with the stabilisation of the domestic currency and pickup in demand, it is likely that earnings will see significant growth.
The services sector, which accounts for about 55 per cent of the nations GDP, has expanded at the quickest pace since July. Another data showed the Nikkei India Manufacturing Purchasing Managers Index strengthened from 52.2 in September to 53.1 in October, as new orders and production increased at the quickest rate in four months.
Indian manufacturers are confident that output will be higher over the course of next year and many companies have raised spending in marketing and research and development activities.
On the flip side, growth in infrastructure industries, which contributes 40 per cent to the industrial production index, slowed in August. On the tax collection front, the GST revenue collections have been surprisingly robust. Actually, a four-fold increase in detection of tax evasion and recoveries in the first six months of the financial year has played a vital role in raising GST collections. To note, GST collections for October crossed Rs 1 lakh crore.
Undoubtedly, almost all the macroeconomic developments this year have been marked by swings, not only in India but in other emerging economies as well. India has two underlying macroeconomic vulnerabilities, fiscal and current accounts, and both have deteriorated thanks to a surge in the crude oil prices and a depreciating rupee. Fiscal deficit touched 95.3 per cent of its full-year target in the first six months of 2018-19 on the back of lower revenue income and higher expenditure, posing a danger to the fiscal deficit target of 3.3 per cent of GDP.
The economy, which had benefitted a lot from lower crude prices, has suddenly found its current account and fiscal account at risk following a major surge in crude oil prices. Recently, more than 20 per cent slide in crude prices once again appeared to be helping alleviate the concerns over the twin deficits and has lent support to the local currency.
The outlook for the economy from here on will be determined by economic policy in the runup to the general elections, scheduled for May next year. If macro-economic stability is protected and more reforms are introduced, the global economy will remain buoyant and growth could start recovering.
What is needed is policy vigilance against emerging macroeconomic concerns. As we get into the election year, the government needs to stick to prudent measures and policies. Indias macros are far better placed compared with other emerging economies, and the recent correction seen in the stock market has made valuations of quality stocks very attractive.
Compared with its peers, India is still shining and will continue to do so, on the back of strong growth in GDP, corporate earnings and favourable geo-political developments. Besides, Indias young demographic profile mixed with a strong industrial base, developing infrastructure, flexible startup ecosystem and clear growth vision from the Modi government can offer India a significant reasonable advantage over other emerging economies
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