It is time to take stock of our economic performance during the past year, if only to make an assessment of what is in store for us in 2015. There is discussion and debate on whether this year would mark the end of the current phase of slowdown and pave the way for a strong rebound in growth and job creation. There is also anticipation on whether the year has created conditions for demand to take off which would yield rich dividends in the coming year.
Looking back, 2014 has been a momentous year for India. It marks the turning point wherein the country would be exiting the phase of sub-par growth of the past two years and would enter a new era of economic recovery. The ushering in of the new government has restored confidence in the India story and created an environment of hope. The credo of development through good governance, with a focus on execution, has struck a right chord.
New life has been infused in the economy hitherto hamstrung by weak growth and high inflation. Our GDP has recorded a 5.5% growth in the first half of the current fiscal after remaining in the sub 5% range for the last two years. We are ranked among the fastest-growing large economies in the world. The government’s commitment to undertake growth-oriented and investor-friendly reforms has kick-started the process of pulling our economy out of the vicious circle to the virtuous circle of growth.
As a result, business sentiment has improved significantly. There has been a rally in the stock market with equity market performing much better than most world markets. India has emerged among the best-performing equity markets in 2014, ranking ninth in terms of market capitalisation. Our external sector has done fairly well with current account deficit within our comfort zone. Besides, foreign investors have started considering India as an attractive destination for doing business. Moreover, the rupee has stabilised at 62-64 to the dollar. The rating agencies have also started rethinking their outlook on India.
The global environment has in some ways been positive for India. The sharply falling international fuel and commodity prices has contributed significantly to the decline in inflation. Taken together with the numerous interventions made by the government to ease inflationary pressures, our headline inflation has dropped sharply to zero% while retail inflation has plunged to 4.38% in November. And it is hoped that the conditions would be propitious for stronger growth and lower inflation in the coming year.
No doubt, the prevailing economic landscape brings cheer. But on the flip side it is also recognised full-fledged economic recovery could still be some distance away. Our industrial sector has shown a vacillating performance during the year. Besides, gross fixed capital formation, an indicator of investment in the economy, is yet to show visible signs of take-off. At the corporate level, new investments have yet to gather pace as capacity utilisation levels are not 100% in many sectors. Consumption demand is also tepid especially at a time when we are in the midst of the busy season where demand generally gains traction.
The deficient monsoon this year is also a concern for agriculture and industry, going forward. The four-month long monsoon season this year ended with 12% below average rainfall. The delay in monsoon has led to deferred sowing which could impact food grain production. It is reported that India’s food-grain production could drop by around 7% in the kharif season this year due to delayed rains. Yet, the monsoons were better than expected with plenteous rains in the second half making up for the deficiency in the initial months. Hence, its impact on growth and inflation is expected to be small.
Overall, the turn of events show that 2014 has been a harbinger of change. The tide has turned in favour of India and expectations abound that the reform agenda would get further impetus in the new year. Given the turn of events, the need to transform our potential into outcomes has never been as intensely felt as now. We are certain that the government would deliver on its promise to carry forward the next generation reforms which would lead us to a higher trajectory of growth in the coming year.
By Ajay Shriram
The author is president, Confederation of Indian Industry (CII)