Hope for higher India economic growth

Business leaders and analysts are optimistic about what the new year has in store for India’s economy as they look forward to reforms from the government that would help transform the economic landscape.

“We foresee an improved economic outlook for the Indian economy this year,” says Vimal Bhandari, the managing director and chief executive of IndoStar Capital Finance in Mumbai.

“Going forward, policy reforms initiated by the government, lower commodity prices and a surge in investment activity will be the key triggers in propelling the economy on an upward trajectory.”

The IMF is forecasting that the country will continue to be the world’s fastest growing economy in the fiscal year from April 2016 to March 2017 with growth of 7.5 per cent, up from a predicted 7.3 per cent during the previous 12 months.

Businesses and investors are perhaps most eagerly awaiting the long-delayed introduction of the goods and services tax (GST), which would simplify the country’s convoluted tax regime and is expected to boost economic growth. The move would be one of the most significant economic reforms in its history, but the opposition Congress party has been doing its best to prevent it from being passed.

“Key pending legislations such as the GST bill needs to be passed at the earliest to usher in a uniform taxation structure in the country, which will boost trade and commerce activity,” says Mr Bhandari. “A key bill that also needs to be passed in the next parliament session is the bankruptcy bill, which would mitigate the insolvency problems of businesses and ensure a viable investment climate in the country by creating a proper survival mechanism or speedy liquidation of sick businesses.”

The economy showed signs of improvement last year after struggling in previous years with soaring inflation and gaping deficits.

“India might be entering an era of low inflation and higher real GDP growth, which is the most optimal economic scenario for any country,” says Varun Goel, a vice president at Motilal Oswal, an asset management company based in Mumbai. “The foundations for a strong economic upturn have been put in place.”

But “the expected upturn in economy will neither be quick nor even”, he warns.

“India’s economy is in better shape compared to the past few years,” says Mahesh Singhi, the founder and managing director of Singhi Advisors, a global investment banking firm in Mumbai. “A few positives that would be carried forward to 2016 are low inflation, current-account and fiscal deficits, prospects of interest rate fall and low oil prices. The government spending is slowly picking up and monsoon outlook for 2016 is also better than 2015. One negative is corporate earnings, which have been tepid, but we expect earnings to recover in the second half of 2016.”

Action by the prime minister Narendra Modi’s government to push through reforms will be “crucial”, he adds.

“Last year was a washout, as all of us waited for key reforms like GST and land bills could not be passed. It becomes very important for the government to pass these bills to reinsure investors’ confidence. It is also very important for private sector to start spending on capex [capital expenditure].”

But there remain hurdles too, as banks face pressures, which have a spillover effect on the wider economy, and with the rupee trading at weak levels.

“The biggest challenge is bank NPAs [non-performing assets], which are preventing them from lending to the infrastructure and real estate sectors. The banking sector has already 13 per cent of its assets under the stressed category. Another challenge is the depreciating rupee, which is hurting imports.”
Source: The National