Is The Indian Economy On An Upswing Now?

Is the Indian economy on an upswing now?

Context:

The Indian economy has shown a strong V-shaped recovery driven largely by domestic growth impulses.

GDP low-down:

Nine consecutive quarters since the fourth quarter of 2015-16, Gross Domestic Product (GDP) growth fell quarter after quarter from a peak of 9% to a trough of 5.6% in the first quarter of 2017-18.
As is widely recognised, this was due to demonetisation and the transitory adverse effects of the goods and services tax implementation.
These eventually subsided and for the last three quarters, growth steadily recovered to 6.3%, 7.0% and 7.7% in the second, third and fourth quarters of 2017-18, respectively.

Productivity focus

Many of the government’s policy initiatives have shown a clear productivity-enhancing supply-side thrust including demonetisation and the GST.
The new Monetary Policy Framework agreement has institutionalised a consumer price index (CPI) inflation target of 4% on average.
Key policy initiatives (Make in India, Start-up India) also aim at improving productivity.
Two early policy successes are related to market determination of mineral and spectrum prices.
The power sector further benefitted from the Ujwal DISCOM Assurance Yojana scheme.
For real estate and banking, the regulatory framework was changed.
Additional fiscal space was created by better targeting of subsidies while expansion for rail/road projects was prioritised.

Short-term drags on India’s prospects

Two factors may create short-term drags on India’s prospects for maintaining a sustained level of high growth:

rising global crude prices and
prospects of fiscal slippage.
Global crude prices recently touched $80 a barrel. for the first time since 2014. The supply factors include U.S. sanctions on Iran and the crisis in Venezuela.

The demand side:

According to the World Bank, world oil consumption grew strongly in 2017, up by 1.6% year-on-year.
In 2018, U.S. consumption growth is expected to gather further momentum.
Rising crude prices may adversely affect most indicators of India’s macro balance including trade and current account deficits, inflation, exchange rate and fiscal deficit.

GDP in track:

The Centre’s fiscal deficit-GDP ratio, after showing a steady improvement since 2014-15, slipped back to a level of more than 3.5% of GDP in 2017-18, exceeding the fiscal responsibility and budget management (FRBM) target of 3% and the budgeted target of 3.2%.

Source:TH