The bright spot

India is the only EM offering growth and stability to global capital

In spite of considerable pessimism in many quarters, there is, in fact, a growing amount of evidence that India’s economy is on the mend. When viewed objectively, the fundamentals of the Indian economy are so distinctly sound that the country appears only passingly affected by the winds blowing through other emerging markets and developing economies. Many of its peers — such as Turkey or Brazil — are on the brink of crises, thanks to the rapid repatriation of capital upon the resumption of strong growth in the US and the US Federal Reserve’s schedule to finally tighten monetary policy. They are dealing with yawning deficits and collapsing currencies, and have both had to take special measures to protect their currencies. Yet, India remains clearly an exception to this rule. This is a reflection of the recovery that the Indian economy appears to be going through as well as the underlying macroeconomic stability. The latter is provided, in part, by the confidence that the government is committed to fiscal consolidation even if it missed last year’s target and may abandon this year’s as well. The introduction of the goods and services tax, although accompanied by much confusion and complaints about missing refunds, has been good for the numbers, raising the tax to GDP ratios to unprecedentedly high levels. India has also overtaken France to become the world’s sixth-biggest economy, the latest data from the World Bank shows. And according to projections made by the International Monetary Fund, it will be the world’s fourth-largest economy by 2022.

 
There are multiple signs of recovery if examined carefully. The Nikkei India Purchasing Managers’ Index (PMI) for manufacturing in June this year rose to 53.1 from 51.2. Services too expanded in June, according to the PMI, in the sector’s fastest improvement in a year. Clearly, these are signs of recovering demand. Bank credit growth is also now in double-digit territory and has been for some months after a long period of poor growth. In June, passenger vehicle sales grew at over 37 per cent, faster than they had for a decade. Growth in the sales of commercial vehicles is, according to the industry, hitting levels last seen in 2011-12, when the economy was heated and, in fact, close to double-digit growth. Railway freight growth looks similarly solid. Air passenger growth has slowed marginally since the end of 2017, but India recorded its 45th straight month of double-digit passenger growth in May. And airlines are looking respectable financially. And most importantly, perhaps, non-oil exports have started showing increases after a long period of stagnation.

 
There is every reason to hope that this strong performance, and thus India’s standout position among emerging markets, will persist. For one, global growth is recovering and thus exports should have tailwinds boosting them. The US is at close to full employment and other export markets for India are also doing reasonably well. The prospects for information technology-enabled services exports are thus improving. The twin disruptions of demonetisation and the goods and services tax are receding into the distant past. All in all, India’s exceptional position as the only emerging market offering growth and stability to global capital may continue for some time.