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May 02, 2018

Indian Economy: 47 months later

Four years of the Narendra Modi-led National Democratic Alliance (NDA) have been amixed story of good luck on oil, reforms and repair, disruptions, and slower growth. As thegovernment’s present term draws to a close, we take a look at how crucial numbers havemoved since it swept to power with an overwhelming mandate in June 2014. We assess thegovernment’s performance through three lenses:


  • Macroeconomic environment: The macroeconomic parameters have generally shown improvement with lower volatility. India’s gross domestic product (GDP) grew at 7.3% per year in the past four years, which was lower than the trend of 7.6% in the preceding decade. The growth slowdown was partly a result of policy choices aimed at improving macroeconomic parameters such as inflation and fiscal deficit. The slowdown became more pronounced in fiscal 2018 due to demonetization and Goods and Services Tax (GST) related glitches in an environment of drying up of good luck factor from crude oil. Retail inflation declined through the four years aided by soft food inflation and proactive steps from government.Improving twin deficit was another hallmark of the NDA regime though some of the gains were reversed in fiscal 2018 with 30 basis points (bps) slippage in fiscal deficit/GDP and surge in the current account deficit. Despite the pick-up in foreign direct investment, there was no notable uptick in private investment. Another worrying aspect of last four years has been the surge in non-performing assets of the banking sector. 
  • Business sentiments: Reforms and improvement in macroeconomic balances werenot enough to move business sentiments materially, as per the surveys by theReserve Bank of India (RBI), the National Council of Applied Economic Research, andbusiness chambers (Confederation of Indian Industry, Federation of IndianChambers of Commerce and Industry). After being hit by demonetization and GSTdisruptions in 2017, business sentiments have started recovering.
  • Global positioning: Even with growth slowdown, India still stands tall as the fastestgrowingcountry in BRICS (Brazil, Russia, India, China and South Africa). India hasalso improved its global competitiveness position and ease of doing business rankdue to reform focus of the government. However, corruption ranking, after initialimprovement, again slipped in 2017.

Net-net, many of the reforms initiated by the Modi government are work in progress andneed relentless execution focus. Without doubt, these create an upside to the mediumtermgrowth trajectory. So, the focus in 2018 should be to consolidate action on reformsalready announced. GST and the Insolvency and Bankruptcy Code are the key reforms withpotential to be game changers for the economy over the coming years.