SINGAPORE (Dec 18): There is a spring in the Indian economy’s step, after a year in which few things seemed to go right. Prime Minister Narendra Modi’s bold attack on the black economy through demonetisation in November last year did not quite achieve its objectives, but did hurt a large part of the economy. The lacklustre implementation of the goods and services tax (GST) earlier this year had also depressed economic confidence. Now, however, we are finally seeing light at the end of the tunnel. The economy rebounded in 3Q2017, with growth accelerating to 6.3% from a cyclical low of 5.7% in the previous quarter, ending a streak of declines. The action by Moody’s to upgrade India’s sovereign rating for the first time since 2004 also helped raise hopes.

Can India really overcome its period of despondency and regain its lustre as a dynamic economy? There is certainly evidence to suggest that the worst is over and that economic activity will perk up in the coming year. There is also more reason to think that some of the heavy structural headwinds that kept the economy down are easing, brightening the longer-term prospects. But the case for expecting India to enjoy a period of sustained super-charged growth will not be compelling until the political situation is settled enough to allow further reforms.

The economy is returning to life
While the headwinds from demonetisation and GST implementation have not receded fully, there are reasons to believe that growth is set to pick up further in the quarters ahead:

  • The Composite Leading Indicator (CLI) bottomed out in March 2017 and has been rising since, hovering at levels that suggest the economy should return to near trend rates of growth for most of 2018;
  • The Manufacturing Purchasing Managers’ Index surged in November, with production rising at its fastest rate in a year. Moreover, industrialists reported growing order books — encouragingly, new export orders have started to grow again after three months of decline; and
  • The Reserve Bank of India’s Industrial Outlook Survey showed that, after a year of poor confidence, companies’ perceptions of the near-term outlook are now at a ­multi-year high.

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