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  1. After a roller coaster ride, Indian economy at inflection point

After a roller coaster ride, Indian economy at inflection point

For the Indian economy, the year 2015 could mark an inflection point of sorts, both in terms of moving to a higher growth trajectory...

By: | New Delhi | Updated: December 26, 2014 4:18 PM
Indian Economy, India GDP, india gdp growth, Indian economy growth, GDP growth

Citi noted that India has ‘surprised’ in 2014 and it might do so again as the India GDP growth figure is expected to pick-up from 5.6 per cent in the current fiscal to 7 per cent in 2016-17. (Reuters)

For the Indian economy, the year 2015 could mark an inflection point of sorts, both in terms of moving to a higher growth trajectory of 6 per cent or more and the shift to a sustained low inflation phase — something that is expected to prompt the Reserve Bank of India to commence an easing of its monetary policy stance early into the new year.

The period would also herald a possible shift in the Centre’s stance on fiscal consolidation, something that is likely to be weaved into the broader template of Union Budget 2015-16.

Despite external pressures such as the ongoing Russian currency crisis or the challenges that emerge from the sharp spurt in the US economy, most analysts are of the view that the recovery in Indian economy will be driven by domestic factors. This is despite renewed concerns over the possible impact of improved prospects in the US forcing the benchmark BSE Sensex to shed nearly 300 points on Wednesday as foreign institutional investors sold shares worth Rs 2,808 crore from the Indian equity markets.

Quarterly-GrowthHowever, maintaining that the Indian economy would easily grow at rates of 6 per cent or more in 2015-16, DK Joshi, chief economist, Crisil, said, “The third quarter GDP data for the US could hasten the normalisation of policy rates there, which would have some impact on the Indian economy. But better growth in the US means that Indian exports and IT/ITeS services will do well. The improved prospects for the US are expected to just offset the poor growth in the rest of the world.”

MacreconomicsWhile the Mid Year Economic Analysis that was tabled in Parliament last week estimated GDP growth at a staid 5.5 per cent this fiscal, finance minister Arun Jaitley too had evinced hope earlier this month that the economy would grow by 6 per cent to 6.5 per cent in 2015-16 and exceed 7 per cent in 2016-17.

Analysts point to two possibilities — a rate cut by early next year as well as higher public spending in the next fiscal would also spur GDP growth.

“It is for the first time that the chief economic adviser or the finance ministry has acknowledged that growth by itself will not be enough and needs to be stimulated. There is a need for an expansionary policy from both the fiscal and monetary side,” said DK Srivastava, chief policy advisor, Ernst and Young, referring to the mid year review’s call for higher public spending.

Global brokerage Citi too noted that India has “really surprised” in 2014 and it might do so again next year as the country’s GDP figure is expected to pick-up from 5.6 per cent in the current fiscal to 7 per cent in 2016-17.

In a recent report, the agency noted, “While one can debate on the timing, we reiterate our view that India is on its way back to 7 per cent growth and lower inflation.” Lower global crude oil prices along with expectations of a normal monsoon are also expected to keep inflation low, leading to an easier monetary stance. While the mid-year review pegged retail inflation to be in the range of 5.1-5.8 per cent in the next five quarters starting December 2014, Joshi said CP inflation is likely to be about an average 6 per cent next fiscal.

The finance ministry has opened a Pandora’s Box on its fiscal consolidation plan with the chief economic adviser Arvind Subramanian suggesting a review of the fiscal strategy to spur growth.

While the finance ministry has maintained that it would meet its fiscal deficit target of 4.1 per cent of the GDP in 2014-15, finance minister Arun Jaitley is expected to take a call on the Centre’s roadmap on fiscal consolidation as part of the Union Budget 2015-16.

The much awaited reports of the Fourteenth Finance Commission and the Expenditure Managament Commission too will have an impact on the government’s strategy to tackle the deficit.

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