Health of Indias Economy vs major Emerging Economies

The Indian economy recorded 7% GDP growth in the first quarter of the financial year 2015-16. Economists are confused on whether to be excited about this
growth number (which has come amidst a gloomy global economic setting) or worry that domestic growth is decelerating from previous periods. Here are a few
factors that should help you decide.

The GDP number in perspective: Last quarters 7% GDP growth is below the 7.5% figure reported for the first three months of this calendar year, as well as the
7.3% recorded for the full financial year 2014-15. This suggests that economic growth in the country has slowed down, as opposed to gathering pace, as it was
expected to when the Modi government took over. However, it must be realized that today, the world economy is much different from the previous fiscal. The
green shoots of recovery that were emerging then, have been unable to survive for long. Also, the Modi government came in with a lot of internal house cleaning to
do; only some of which seems to be done yet. Despite this, last quarters growth has come in higher than 6.7% that was recorded in the same quarter last year. This
suggests that we have made some progress, but a lot remains to be done.

Better growth than other emerging markets: Despite a modest 7% figure, Indias growth rate stands above most of its emerging-market peers, namely
Russia, Brazil, Turkey and South Africa; and at par with China. While most of these economies seem to have recently entered a recession, India, which was never in
a recession, seems to be coming out of its domestic problems. The crash in global oil prices and the imposition of an economic embargo have left Russia in an
impoverished state. The countrys growth rate has become negative and the Rubble - its currency has fallen to parity with the Indian rupee. Brazils recession
deepened further last quarter, as the country experienced a contraction of 1.9%. Many economists believe that China too has entered an extended phase of
economic slowdown, following a major export boom. The country had to devalue its currency twice in August alone, and take desperate measures to support its
ailing infrastructure sector. Many of its cities have turned into ghost cities, as millions of new, up-market homes have no buyers. This has forced the government
to buy them at a fraction of the original value, and resell them for even cheaper, as low-cost houses for the poor. Former IMF economist Eshwar Prasad expects
Chinas growth to fall to 6.5%-7% from the double digit rates that the country has become used to. Indias economy, even for its challenges, seems much better
placed.

India in a sweet spot: Despite an average performance last quarter, India has many things going right for it. The wreckage caused by inflation now seems to be
over as we have now moved into disinflation. This means that the RBI can adopt a more pro-growth monetary policy by introducing another large interest rate cut.
Lower rates will enable people to spend more and companies to invest more. Growth will also be supported by the collapse of crude oil which, at below $50 a
barrel, is much lower than most economists year end estimate of $60-65 a barrel. Additionally, the commodity super-cycle is now over, which means that India
will be able to import things at a much lower cost than earlier in the decade, to support its growth. However, with the rupee falling to a two year low, this incentive
will be somewhat limited. Buoyed by these factors, foreign companies invested $ 9.5 billion in India, between April and June this year. This is an increase of 31.4%
over last year.

Key domestic concerns remain: Despite promising big, the NDA government has achieved little with regard to promoting Indias economic growth. The
present session of parliament was expected to be a landmark session as two critical bills- GST and Land Bill- were slated to pass in it. GST will rationalize indirect
taxation related to manufacturing, transportation and sale of goods and services, in India. It is widely touted as the final bit of legislation that would make FDI in
retail work in the country. The Land Bill will make acquiring land for industrial and infrastructural projects easier. It will enable work on many stuck projects to
restart, and facilitate many new projects to commence. It is unlikely that either bill would pass in the current session of the Parliament. A failure to get these bills
passed could have an adverse effect on private sector investments going forward. CRISIL expects investment in 22 large industries in the country to slip by 8% in
the 12 months ending March. A more committed push on the reforms front will inspire confidence in the private sector and enable it to invest more in the economy.
This is especially true when growth opportunities externally are limited.