Inflation falls, GDP surges ahead

One year may be a short period in the life of a nation. For a democratic  country like India, it means almost a quarter of its lifespan. The performance report card of the BJP-led National Democratic Alliance government’s first full-year at the Centre has been a talking point not only in India but also outside the country for two key reasons. 

Firstly, India’s poor economic growth and high domestic inflation between April 2011 and May 2014 had visibly shrunk opportunities for the world’s second most populous nation. Secondly, increased domestic consumption and high GDP growth in India could change the economic outlook of both the country and the world. India’s economic stability and growth mean a lot to the world, especially after China’s economy began showing signs of stress and slow-down. 

In all fairness, the Narendra Modi government, which was elected to rule the country a year ago, has met expectations on the economic front. India’s economic weight according to leading investment experts is now the highest ever assigned to any emerging market. Furthermore, international rating agencies have predicted that India would surpass China’s economic growth rate at the end of 2015-16. 

Global Funds, Asia-Pacific Funds and Emerging Market Funds are bullish on India by 120 to 500 basis points <g data-gr-id="78">(bps),</g> when compared with their earlier benchmark indices. For instance, these Emerging Market (EM) funds have parked 10.9 percent of their money in India as against a country <g data-gr-id="84">weightage</g> of 6.7 percent in the widely tracked Emerging Market Index. Indeed, this is the highest weight global funds have accorded to any emerging market in the past 20 years. Of the total Indian assets under management by foreign portfolio investors, half the amount is under the custody of Global Funds, Asia Pacific and EM funds. “In the long-term, foreign funds assigned a weight to India will gradually rise. 

“India is a compelling (growth) story not just because of reforms, growth and quality of companies; it also stands out in the EM universe. India is increasingly being viewed as an investment destination in its own right, not just part of an EM index,” said Jonathan Schiessl, head of equities at Ashburton Investments, which oversees $12 billion of assets. He says he is not worried about short-term money flows though they can be significant. In the last calendar year, Global Funds have raised their allocation to India by 70 bps to 2.2 per cent; EM funds raised it by 260 bps to 10.9 per cent while Asia-Pacific funds by 270 bps to 12.6 per cent. 

The foreign fund managers and rating agencies are certainly smart. They have no specific love for any government or political system, leave alone a head of government. India is looking up. Inflation rate is down and manageable. Last year’s economic growth exceeded seven percent. The consumer price index (CPI) inflation decreased to 5.17 per cent in March, this year, from 8.59 percent in April, 2014. It is the lowest rate in three months due to a slowdown in food cost. 

The inflation rate in India averaged 8.69 percent from 2012 to 2015, reaching an all-time high of 11.16 percent in November 2013 and a record low of 4.38 percent in November 2014. Wholesale price inflation is negative at (minus) 2.33 percent in March this year. It was 5.44 percent in April 2014. The  real GDP growth  is expected to accelerate to 7.4 per cent, making India the fastest growing large economy in the world. Foreign inflows since April 2014 have been about $55 <g data-gr-id="87">billion,</g> so that our foreign exchange reserves have come a long way from where the country had started and increased to a record $340 billion. The rupee has become stronger by 6.4 per cent  against a broad basket of currencies. Current account deficit would be less than 1.3 percent in 2014-15. Both fiscal and revenue deficit has been showing a declining trend. 

Several pro-poor initiatives, including the highly successful launch of Pradhan Mantri Jan Dhan Yojna (PMJDY) and Mudra Bank, marked this government’s first year of operation. The platform was widened through empowerment, creation of job opportunities by way of bridging infrastructure deficits, skill upgradation and ‘Make in India’ initiative for developing India as a global manufacturing hub. It unleashed an era of financial inclusion, by implementing PMJDY. In just 100 days, over 12.5 crore family have been brought into the financial mainstream. 

While the government is committed to improving urban centres by developing smart cities and urban habitations. The ‘Swachh Bharat Abhiyan’ has been transformed into a movement to regenerate India. It is not only a programme of hygiene and cleanliness but, at a deeper level, a programme for preventive healthcare and building awareness. Interestingly, the corporate sector is providing a further boost to <g data-gr-id="73">Swachh</g> Bharat and Clean Ganga Campaigns by including these activities under their Corporate Social Responsibilities (CSR). 

The government has also embarked upon the use of Jan Dhan, Aadhar and Mobile (JAM), a unique combination of three, to implement a direct transfer of benefits. This innovative methodology will allow the transfer of benefits in a leakage-proof, well-targeted and cashless manner. There would be cut in subsidy leakages but not in subsidy themselves. 

 While the government is building a national consensus to amend the Constitution to implement the Goods and Services Tax (GST), it will put in place a state-of-the-art indirect tax system by April, 2016. This will create a unified and common domestic market by replacing a confusing array of taxes and preventing their cascading effects. It has launched an ambitious plan to bring electricity to all villages by 2020. The government continues to support important national priorities like food security, MGNREGA, and kerosene/fertilizer subsidy. The union budget for this year allocated Rs 34,691 crore for MGNREGA and Rs 1,24.419 crore for food subsidy.

 The government is working hard to provide access to medical services and schools for all. The aim is to provide six crores urban and rural houses by 2020 with each house to have uninterrupted power supply, clean water and a toilet. The achievements and programmes are certainly raising the quality of life of Indians and will have  a long-term positive impact on the economy. No matter what some Congress leaders say, India is probably back on a high growth trajectory. International agencies are betting big on India. IPA