India: The dream will fructify

After facing certain alarming lows and battling the odds, India is all set to re-emerge as one of fastest growing major economies in 2018-19. According to IMF, India is expected to grow at 7.4% in 2018 and 7.8% in 2019. These figures beat those of its nearest rival China, with 6.6% and 6.4%growth in those two years respectively.

Double trouble

India’s economic growth slowed sharply for a large portion of the previous year. The main reasons for this slump were the Government's demonetisation initiative undertaken in Nov-16, and the implementation of the Goods and Services Tax (GST) in July-17.On 8-Nov-16, the Government stated that Rs 500 and Rs 1,000 notes were scrapped, and would not be considered legal with effect from midnight. The notes of these denominations accounted for 86% of the country’s cash supply in terms of value. Though the Government’s intention was to combat counterfeit currency, eradicate black money, tax evasion, fight inflation, and promote a cashless economy, the initial impact of the move was very unfavourable. This is owing to the fact that the Indian economy is cash-driven, so demonetisation affected growth very adversely. The GDP growth rate of 8.01% in 2015-2016 fell to 7.11% in 2016-2017 post demonetisation.

This was followed by the implementation of the Goods and Services Tax (GST). The aim of this was to facilitate economic integration in the country, with all taxes being consolidated into one. It was meant to restructure indirect taxation, making the process easier. But taxpayers were anxious about seemingly higher tax rates after the GST rollout.As a result, India’s GDP for April-June FY18 stood at 5.7, a bleak three-year low. This was seen by many as the twin effects of demonetisation and the implementation of the Goods and Services Tax (GST).

Looking good

However, the initial impact of these moves has now been absorbed, with India looking at the long-term benefits of both. The country reclaimed its status as the world's fastest-growing economy in the Oct-Dec quarter in 2017.Another poll taken at the start of the current fiscal - FY19 - foresees that the Indian economy would expand 7.4%during this period. Looking ahead, growth in the next fiscalis expected to stand at 7.5%. IMF's forecast is a tad higher at 7.8%.

Some negatives

However, certain aspects could be a dampener in India’s growth story, one of them being the breaking out of a trade war between the US and China. In a poll conducted by Reuters, a majority of economists were of the opinion that the Indian economy would be impacted negatively by the trade row. The chances of this happening would definitely be higher if India favours one nation or takes sides, as this could undoubtedly raise possibilities of duties being imposed on India by the country it has taken a stance against.With the national elections coming up next year, increased Government spending is quite literally a given, and is expected to be inflationary.The importance of the monsoon in the country’s growth story cannot be understated. A key contribution would be that a healthy monsoon would help curtail food price inflation, as it would ensure a healthy grain production. The India Meteorological Department has forecast a normal monsoon in 2018, imperative for the sustenance of the country’s growth and more specifically, its rural sector. This comprises about 15 percent of India's Rs2 lakh crore economy, and also provides employment to more than half of the country’s 130crore populace.With the effect of the one-offs (GST and demonetisation) behind it, India now stands at the cusp of notable change, ready to resurface as one of the fastest-growing economies.