If you look at the global markets for investors today, two big blocks will come to mind immediately — India and Africa. Unsurprisingly, these emerging markets have attracted maximum foreign investment over the last two decades. India, being the bigger of the two, remains a hot favourite with foreign investors. Narendra Modi’s India has received $250 billion FDI in the last six years, which is equal to the foreign investment in the 14 years prior to 2014. At present, the confidence appears to be slightly low in the Indian corporate world, which can be attributed to their concern over the global economy, where the GDP is likely to come off by over 60 to 70 bps.
Contrary to what detractors are saying, the RBI made a responsible gesture by handing over a big surplus of Rs 1.76 lakh crore to the government. It is in the national interest because it will support the government with the ammunition not only to combat the potential economic slowdown but also help spur investment and sectoral stimulus
The government is making an all-out effort to put the economy back on the eight percentage plus growth rate. But the private sector appears to have shown little appetite to fight shoulder-to-shoulder with the government. Our private sector and indeed the economists across the ideological spectrum were aware that Modi-1 was about laying the foundation for a robust, modern economy. It was going to be a bit bumpy, but very fruitful in the long run.
Many claim there is a feeling of fatigue in the world’s sixth leading economy after a long run of high growth. Even at the forecasted rate of 6.30 per cent, the Indian economy continues to be the fastest growing among the top global economies. The not-so-impressive growth rate of 5.8 percent in one quarter shouldn’t lead to fears
Yes, there is a slowdown. But we have not entered uncharted territory.
Modi-1 had inherited a largely informal, cash economy with a burgeoning, chaotic unorganised sector. Of course, India had changed beyond recognition following the reforms of the 1990s, but large parts of the economic activity had remained ensconced in the past. The Modi government embarked on game changing plans to formalise the economy. Demonetisation and GST were the two bold changes the government had to make in the national interest.
Another factor that has contributed to the slowdown is less-than-normal rainfall in the recent past (thankfully, this year the monsoon is good). Unfortunately, this factor is generally overlooked in the debate. The elections may also have contributed to the slowdown. Forced by the code of conduct during the elections, the government was unable to spend on schemes or announce big reforms. As a result, the growth in capex had slipped to 2 per cent from the previous quarter of 12 per cent and impacted in GDP by around 80 bps. India’s slowdown is also firmly linked to the global trend and the ongoing US-China trade war is not helping matters.
It will be a great service to your country if you do not panic. Our economy is on a very sound footing. Our macro indicators are all good. Consider this: Forex reserves are an all-time high at $491 billion; CPI inflation is tracking at 3.2 per cent and has remained below the 4 per cent mark for nearly 12 months. Core inflation has also decelerated meaningfully in the last 12 months. Gross FDI flows remains robust tracking at close to 2.4 per cent of GDP on a 12-month trailing basis.
PMI manufacturing and services for July saw an improvement compared to a slowdown in previous month. This is encouraging and it suggests that the economy has shown improvement and also accelerated the job creation.
The juggernaut of the Indian economy has generated so much energy over the years that a strong momentum has been in motion for the last few decades. It’s continuing to propel the economy forward. The government was not exactly sitting idle before Finance Minister Nirmala Sitharaman announced a series of welcome measures at a press conference last week and reiterated her resolve to fix the problem at another meet on Tuesday.
Some in the industry have argued that there was a crisis of confidence between lenders and borrowers and between the government and industry. They had urged the government to look into it. The FM has done exactly that. The infusion of Rs 70,000 crore to PSU banks will shoot up lending to the tune of Rs 5 lakh crore, assuming banks leverage it seven times. The government is launching structural changes in the agriculture sector, such as modifying the Essential Commodities Act.
Government spending is going to pick up following the good monsoon. Consumption will rise as we are entering the festive season. Growth will come. It will come from improving exports, from investment and from disinvestment. The government is encouraging private investment, as announced in the budget. The foreign investors’ shares have been increased. It is bound to attract more investment from abroad. We believe that government can exceed the disinvestment target for the year, which stands at Rs 1.14 lakh crore.
The forecast is not exactly gloomy for the next quarter and beyond, but yes, it’s not in double digits immediately. With PM Modi’s continued focus on reforms, credit flow and ease of doing business and with his infectious optimism, it’s very likely that we will achieve the $5-trillion mark by 2024/2025 assuming we hit the average GDP of 7.5 per cent and rupee-dollar remains stable around 70.
This article first appeared in the print edition on August 29, 2019 under the title ‘Poised for a leap’. The writer is national spokesperson of the BJP and former managing director, Deutsche Bank, India. Views are personal