Three months into the single impost, Goods and Services Tax (GST), the big question is: has the economy bottomed out? Are green shoots available to signal some sort of a revival from here on? Is the worst over for Narendra Modi government on the economic front?
Well, it may be too early to say that downward spiral has played out. But, the industrial growth and exports surge in August and September 2017 point to a recovery that may be in the offing. One swallow doesn’t make a summer and only a northward trendline on both metrics will determine whether this recovery is sustainable.
Most significant was the 25.7 per cent growth in merchandise exports posted during last month, the highest in this fiscal year. It also points to a trend given that exports have been on a rise uninterrupted during last 13 months notwithstanding the limitations faced by exporters in the wake of rupee appreciation, higher production costs and lower margins.
In fact, exports growth was a healthy double digit though the initial hiccups in securing refunds on time against integrated GST on import of raw material, equipment and services did not happen. The recent cabinet decision has smoothened the refunds as well as mooted setting up e-wallet as a futuristic solution.
What makes double digits export growth particularly optimistic was that the surge has been secular across 30 major product categories barring just four or five products like meat, dairy products, vegetables, iron ore and handicrafts that experienced contraction. The story gets better with imports growth moderating to 18 per cent where a major chunk constitute non-oil and non-gold products.
Even on a six months basis, exports touching $147.18 billion during April– September 2017, must be music for prime minister Narendra Modi and finance minister Arun Jaitley’s ears, who have been under attack from the opposition for ‘economic mismanagement’. Given that the trade deficit was also within manageable limits, there’s no reason why optimists should not be giving a high five.
As a consequence, if current account deficit (CAD) were to be within $8.5 billion during the second quarter as against the $14 billion reported for previous quarter, then that provides an additonal ballast. In effect, Jaitley will have more elbowroom in managing his balance sheet when he presents the budget for next fiscal in February 2018.
Industry output growth of 4.3 per cent in August, highest in last nine months after 5.7 per cent reported in November last year is yet another positive indicator of a possible manufacturing revival. The fact that the industry numbers were based on robust performance in capital goods, power and mining, makes it sustainable.
On the industry growth, hold back on rejoicing yet, given that it’s long way to catch up at 2.2 per cent in April–August 2017 vis-a-vis 5.9 per cent growth reported same time previous year. At least the positive thrust has begun on the back of ten out of the 23 industry groups reporting growth in the last five months consistently. More industry groups will have to brought into the positive growth domain.
Further, with retail inflation hovering at 4.39 per cent, the setting seems perfect for a revival. What would actually make this a reality is if the farm sector and services join the growth party. If agriculture continues to grow at 4 per cent and services posts a double digit upswing, then there’s no stopping for Indian economic story getting back on track. Lowering of interest rates at least in the next meeting of monetary policy committee (MPC) six weeks from now will only hasten the demand growth for consumer goods and services.
As several economists have pointed out, economy will have to fire on all four cylinders and not just one or two. Given the benign scenario, pro-active government and industry campaign jointly can ensure that India gets back to numero uno position as the fastest growing economy internationally. This is doable.