Two years ago, India's macroeconomic situation was a cause for concern.
Economic growth was slowing, and the country's external imbalances were getting
worse. Today, it is in much better economic and financial shape. Its imbalances
have declined and reforms have made progress. These healthy accomplishments need
to be kept in perspective primarily because India has reaped the benefit of a
favourable environment and certain key reforms have still not been adopted
(particularly those related to VAT and land purchases). Nonetheless, genuine
progress has been made.
Growth over the 2014/15 fiscal year as a whole (ended on 31 March 2015) came to 7.3% (vs. 6.9% in 2013/14), representing a pace almost comparable to that in China (7.4%). Even though these growth figures are somewhat confusing given trends in economic indicators, growth prospects remain favourable over the medium term.The measures taken by N. Modi's government to cut the red tape which constrain investment growth should underpin growth in the medium term.
Inflation pulled back to 5% y/y in May 2015 after peaking at 10.1% over the 2008-13 period. This trend stemmed from a global economic environment favourable to India, with lower energy and food prices, but it also reflected a more structural improvement. Firstly, the pace of growth in rural earnings slowed significantly (4.6% y/y in 2014 against 20% in 2011) and, secondly, the central bank managed to anchor inflation expectations by pursuing a more transparent strategy. The target for January 2016 stands at 6%, dropping below the 4% mark thereafter (+/-2%). Even though inflationary pressures may gain steam as a result of higher food prices, if the monsoon were to be 12% below normal levels (as currently anticipated by the authorities), underlying inflation would probably remain under control at 6%.
The country's external vulnerability has decreased, even though India carries a structural deficit in its balance of payments, owing to its heavy reliance on commodities and the under-development of its industrial sector. In 2012, its current account deficit stood at 5% of GDP. However, the picture has improved significantly since then. The decline in oil prices combined with the economic slowdown helped to narrow the current account deficit to 1.4% of GDP over 2014 as a whole.
Source : FX-Primus
#India
#BrighterMacroEconomic
#Imbalances
#FavourableEnvironment
#Fundamentals
#StructuralImprovement
Growth over the 2014/15 fiscal year as a whole (ended on 31 March 2015) came to 7.3% (vs. 6.9% in 2013/14), representing a pace almost comparable to that in China (7.4%). Even though these growth figures are somewhat confusing given trends in economic indicators, growth prospects remain favourable over the medium term.The measures taken by N. Modi's government to cut the red tape which constrain investment growth should underpin growth in the medium term.
Inflation pulled back to 5% y/y in May 2015 after peaking at 10.1% over the 2008-13 period. This trend stemmed from a global economic environment favourable to India, with lower energy and food prices, but it also reflected a more structural improvement. Firstly, the pace of growth in rural earnings slowed significantly (4.6% y/y in 2014 against 20% in 2011) and, secondly, the central bank managed to anchor inflation expectations by pursuing a more transparent strategy. The target for January 2016 stands at 6%, dropping below the 4% mark thereafter (+/-2%). Even though inflationary pressures may gain steam as a result of higher food prices, if the monsoon were to be 12% below normal levels (as currently anticipated by the authorities), underlying inflation would probably remain under control at 6%.
The country's external vulnerability has decreased, even though India carries a structural deficit in its balance of payments, owing to its heavy reliance on commodities and the under-development of its industrial sector. In 2012, its current account deficit stood at 5% of GDP. However, the picture has improved significantly since then. The decline in oil prices combined with the economic slowdown helped to narrow the current account deficit to 1.4% of GDP over 2014 as a whole.
Source : FX-Primus
#India
#BrighterMacroEconomic
#Imbalances
#FavourableEnvironment
#Fundamentals
#StructuralImprovement
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