Friday, November 28, 2014

Indian economic 'slowdown': Big bang reforms fail to take off, Modi magic protagonists should 'rethink' now

By Our Representative
With the Indian economy officially slowing down to 5.3 percent (though experts calculated it earlier at 5.1 percent) during July-September 2014, from 5.7 per cent in the previous quarter, and credit growth hitting a 13-month low in September, Prime Minister Narendra Modi's promise to oversee a revival when he swept to power in May is beginning to be questioned. One of the most influential American dailies, "The Wall Street Journal" has said, with India’s economic growth decelerating, doubts have surfaced "about how quickly the country’s new government can deliver on pledges to end a nearly three-year slump and transform the world’s second-most-populous nation into a manufacturing powerhouse."
The paper underlines, while the GDP slipped to 5.3 percent from a year earlier for the three months that ended September 30, according to government data, manufacturing, which accounts for 15 percent of the economy, "was stagnant, expanding just 0.1%". It adds, while financial and business services may have strengthened, experts such as Shilan Shah, an economist at London-based Capital Economics, said growth for the quarter “is still very lacklustre by past standards—and in terms of what India can achieve at the moment.”
Commenting on the previous quarter's growth rate of 5.7 percent, the paper says, "Growth was modestly above the median forecast of 5.1% in a poll of 16 economists by 'The Wall Street Journal'. In each of the last two fiscal years, Indian growth has come in below 5 percent, the slowest such spell in decades."
It adds, "Starting in 2003, India’s economy grew 8 percent a year on average for nearly a decade, lifting millions out of poverty and creating a generation of young people with middle-class aspirations. The abrupt end of those halcyon years stirred voters’ perceptions that India’s previous government was ineffectual and corrupt, helping to vault Prime Minister Narendra Modi into office this spring... But a series of largely incremental steps by Modi has yet to cause the Indian economy to achieve liftoff."
The paper quotes Glenn Levine, senior economist at Moody’s Analytics, to say that the second quarter’s "jump" to 5.7 percent “an aberration... Exports and fixed investment, both growing from a low base a year earlier, had propelled the April-through-June uptick. Neither of those looks sustainable.” It adds, "A plan to streamline the sales-tax system, which the World Bank has called 'the most crucial reform that could improve competitiveness of India’s manufacturing sector', faces technological hurdles and resistance from state governments."
"Labour unions and their political allies will fight any attempt to relinquish the government’s monopoly on commercial coal production, an operation at the heart of powering the economy", the paper said, adding, despite more confidence than before, "The Indian economy doesn’t quite look poised to return to the near-double-digit growth seen in the 2000s. Exports fell 5 percent year-over-year in October. In September, production of consumer durable goods—motorcycles, televisions and the like—was down more than 11 percent from a year earlier."
Anjali Verma, an economist at PhillipCapital, has been quoted as saying, “The concern is that at the ground level, there is no material change taking place. In our interactions with companies, earlier they were telling us that activity would pick up early this year, then they said in the second half and now some are saying it may not happen until next fiscal year.”
Meanwhile, top British daily "Financial Times" has also noticed that the slowdown may not end so easily as earlier expected. It says, "Those who believed in the Modi magic may have to think again... The latest data show the Indian economy may be in for a more gradual recovery than some expected. The business world is still waiting for a series of much anticipated policy reforms - in areas from insurance to labour laws."
Analysing the latest slowdown, international news agency Reuters says that Modi's election had generated "euphoria" in the stock markets, but "with no major new legislation to encourage industry, growth is expected to have fallen back to 5.1 percent in the July-September quarter." 
Quoting finance ministry officials, it says, "The gross domestic product (GDP) figure could be as low as 5 percent", adding this could prompt Finance Minister Arun Jaitley to "use the weak performance to ask the Reserve Bank of India for a rate cut as soon as next week."
Reuters quotes executives as saying that "any pick-up in corporate demand for loans requires business confidence, which depends on Modi's government living up to its campaign promises. They want to see progress in reforming land acquisition laws, a controversial issue in India, as well as improvements in areas such as coal supply and transport infrastructure." 
It also quotes Isaac George, chief financial officer of GVK Power & Infrastructure Ltd, one of India's leading infrastructure builders, as saying that "the government needs to make it easier to do business in this country. Land acquisition is still a big problem."

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