Canadian billionaire and chairman of Fairfax India Holdings Prem Watsa has observed that though 2019 was a tough year for the Indian economy, there are indications that the downward trend in some key economic indicators has bottomed out. Owing to this, he expects a gradual consumption-driven recovery.
High reservoir levels and soil moisture levels point to a good rabi harvest that could cool inflation and revive consumer demand. A fall in the consumer price index could enable and encourage the Monetary Policy Committee (MPC) to initiate one more policy rate cut, he said in his 19-page letter to shareholders. “The worst may be behind us, and we may see a gradual consumption driven recovery,” he said.
From the end of 2016, India has moved up by 67 places to number 63 in the World Bank Business Report’s ‘ease of doing business’ measure.
His letter also said according to a World Bank director, this is the third year in a row that India has made it to the top 10 ‘improvers’ in doing business. This is a success that very few countries have achieved over the last 20 years since the project was started. At this rate, India could soon be among the top 50 countries in which to do business. This is a testament to the economic reforms that Prime Minister Narendra Modi has been undertaking. However, 2019 has been a year of opposites for India, it added.
The Indian stock markets performed well in 2019 with a return of 11.9 per cent for large-caps but economic growth decelerated sharply, during July-September 2019 with growth declining to a 26-quarter low of 4.5 per cent. The economy is now forecast to grow by only five per cent for the year ending March 31, 2020. The economy, in the previous year, had returned to a growth level of 6.8 per cent after it had overcome the twin shocks of demonetisation and implementation of the goods and services tax (GST).
The letter said, slowdown started with the withdrawal of easy credit for consumers, small and medium enterprises and real estate developers after the IL&FS crisis in September 2018.
Funding became difficult for non-banking financial companies (NBFCs) and it fueled a downward spiral. Consumer spending growth slowed and sales in many consumer sectors like automobiles were hit, resulting in production cuts and plant shutdowns. This led to job losses, said Watsa.
He added, the MPC cut policy rates by 135 basis points (bps) over five consecutive meetings, starting February 2019. However, bank lending rates have moderated by only about 45 bps during this period because bank deposit rates did not fall in tandem with the policy rates. This was because of tight liquidity conditions and poor lending as well as falling business confidence.