Prime Minister Narendra Modi’s policies over the past year have shaken up the nation’s $2 trillion economy, making it tough for investors and advisers to take its pulse. A clutch of economic releases next week should give some clarity. The disruption caused by stripping away 86 percent of cash in circulation and the roll out of a nationwide sales tax has cost India its position as the fastest-growing major economy. Surveys indicate the worst business sentiment since the financial crisis, yet consumers and firms seem convinced that prospects will brighten in the coming months as dust settles following a tax overhaul. “At this juncture, the Indian economy elicits reactions that span the continuum,” Chief Economic Adviser Arvind Subramanian said in his economic survey published Aug. 11. “Optimism about the medium term and gathering anxiety about near-term deflationary impulses simultaneously reign.”
Next week’s numbers will go some way to help the central bank decide if its concerns about growth should override a forecast acceleration in inflation. It lowered interest rates this month citing an urgent need to spur private investment and minutes of the meeting showed that Governor Urjit Patel needs more data to assess the outlook. Here’s what to watch for next week:
GDP Growth for April-June
When: Aug. 31, 5:30 p.m. in New Delhi
What: How deeply has the cash ban hurt consumption and investment? Gross domestic product grew 6.1 percent January to March, almost a full percentage point lower than economists’ projections and the previous quarter’s pace. Much of the slowdown was attributed to the cash ban, which hurt consumption and investment. While analysts predict growth will rebound to 6.9 percent in April to June — the first quarter of India’s fiscal year — Morgan Stanley says the headline number will be flattered by the GDP deflator as inflation slowed. So the trend in underlying data will become even more crucial to assess the strength of the economy.
Budget Balance for July
When: Aug. 31, 4:30 p.m. in New Delhi
What: Will the new tax boost revenue? The slump in investment has forced Modi to frontload government spending and stimulate the economy. That has deteriorated public finances, with the budget deficit reaching 81 percent of the full-year target in the first three months of the fiscal year started April, compared with 61 percent the previous year. To make matters worse, the central bank halved its dividend to the government as Modi’s cash ban added to the costs of printing new currency. DBS Bank Ltd. is focusing on whether the goods and services tax, implemented July 1, will help bridge the gap.
RBI Annual Report
When: Last week of August, date isn’t announced
What: Could we still see a windfall gain from the cash ban? The RBI’s dividend slash has dimmed hopes of any direct benefits from the cash ban. However some economists, such as Madhavi Arora at Kotak Mahindra Bank Ltd., are awaiting the annual report for clarity on whether there were any gains from ending currency liabilities or if the RBI broke with recent practice to transfer funds to its contingency reserve. The report will also include details on cost of printing currency and may shed light on whether some Indians chose to not deposit their so-called black money rather than do so and risk investigation, a metric the RBI hasn’t shared almost 10 months since the cash ban was announced. Governor Urjit Patel said last month that the monetary authority was still counting the bills and information would be provided “at the earliest.”
Manufacturing PMI for August
When: Sept. 1, 10:30 a.m. in New Delhi
What: Have concerns about the GST eased? The Nikkei India Purchasing Managers’ Index last month showed business conditions deteriorated the most since the global financial crisis as the GST roiled distribution links across the country. However firms seemed convinced that prospects will brighten as the GST regime becomes clearer, and the August data will indicate if that is indeed happening.