When The Indian Economy Stumbled And Hopes of Achhe Din Receded

2016 is three days away, but there were no signs of achhe din either for the common man or the businessman in 2015. The Narendra Modi-led government continues to struggle to get key bills cleared in Parliament while its action taken since the middle of 2014, when it came to power, is yet to be reflected in the economic data. But India was not the only country which saw 2015 as a tough year. A global slowdown, which has been persistent since the financial slowdown, continued to impact world economies. As India gets integrated with global economies its growth too suffers in line with the rest of the world. Nearly 53 per cent of revenue of some of the biggest Indian companies mentioned in the broad indices derive their numbers for countries out of India. Thus a slowing world economy to an extent also impacts India’s growth. The performance of the Indian economy needs to be measured keeping in mind the turbulent external environment. Let’s take a look at how the economy performed in 2015 keeping these factors in mind.Churning Domestic Economy 2015 will be remembered as the year when Indian growth rate overtook China’s. In the first three quarters of the calendar year India posted GDP growth rates of 7.5 per cent, 7.0 per cent and 7.4 per cent. Analysts expect the December 2015 quarter to post a 7.5 per cent growth rate and close the fiscal at 7.6 per cent. Though the numbers are lower than the government’s initial forecast of 8 per cent, they are creditable given the unexpected headwinds the country faced during the year. Exports continued to fall throughout the year. They have now been on a decline for 12 straight months. Add to that a poor monsoon, which did not quite help agriculture and the rural economy. It was the manufacturing and electricity sectors that pushed the economy forward. The service sector continued to maintain a steady growth during the year, despite a rather sluggish growth in financials. Importantly, the Index of Industrial Production (IIP) has turned the trend upward. Though there are statistical issues at play since the previous year was on a low base, nonetheless a broad base growth is visible in almost all sectors.2015 Rewind: Signs of StressIndia’s growth rate overtook China but it was lower than government’s own forecastExports declined for 12 straight months, in another sign of macro weaknessMake in India took off, but the impact has not been felt yet in corporate balance sheetsForeign institutional investors pulled money out of India and that led to 3.8 percent depreciation in the rupeeEquities too have been hit, as the benchmark Sensex is nearly 6 percent below last year’s closing level‘Make in India’ Takes Off2015 will also be remembered as a year when ‘Make in India’ took off. The government came out of its cautious mode by focusing more on growth rather than keeping a tight fiscal discipline. New investment projects moved up higher thanks to a series of announcements by the government. Projects under implementation too changed direction and started moving upward during the year. Though private sector investments did not keep pace, foreign investors kept their belief on the ‘Make in India’ story by pumping in money. FDI inflows over the last 12 months touched a new high of $50.5 billion. Higher inflows resulted in forex reserves hovering around record levels of $351 billion.The results of ‘Make in India’ are, however, not visible in the results of listed companies. Analysts will keenly watch the December 2015 numbers to revise their estimates for 2016.Financial Markets Fail To RespondThough FDI inflows were on the rise in 2015, foreign institutional investors (FII) were sellers for most part of the second half of the year. Low oil prices resulted in oil economies withdrawing money from their financial assets, especially in equity markets. Since India was clubbed with other emerging markets it resulted in withdraws rising as oil prices continued to fall. Further, an interest rate hike by the US Federal Reserve saw money leaving Indian shores. This resulted in the broader market posting negative growth for the year. Indian markets are currently trading at nearly 6 per cent lower than their closing level in December 2014. The withdrawal of money by FIIs resulted in the rupee depreciating from 63.88 to 66.2, a fall of 3.8 per cent.The Year Ahead2015 was a year market participants would like to forget but the government would like to showcase it as a year when its reform efforts started showing results. But 2016 will be a year to look forward to as the government will continue to face challenges in the Parliament and markets will continue to face uncertainty in the global environment.(The writer is a Mumbai-based market analyst)

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When The Indian Economy Stumbled And Hopes of Achhe Din Receded

If the government and Parliament do not get their act together, India’s economy will continue to be dismal in 2016.

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Topics: India Economy Make in India GDP growth