A new fiscal year: New hope or old worries?
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In less than a week from now the country will transition to a new fiscal year. Routine? Not really. The coming fiscal year, 2017-18, is crucial and eventful for many reasons; and all of them pack disruptive potential—the kind which could roil the best calculations.
One, it is the penultimate year before all political parties, including the incumbent, start readying for the 17th general election due in the first half of 2019. The Bharatiya Janata Party (BJP), will be looking to ride the momentum it has swung its way following its historic win in the Uttar Pradesh poll and push through yet another round of structural change.
Second, the country will, in the course of the year (most likely 1 July), have its tryst with the most consummate piece of tax reform which for the first time will economically unify India—the Goods and Services Tax (GST). Importantly, it will be a stellar example of cooperative federalism; but on the downside, given that it has never been attempted before on this scale, it has serious unforeseen challenges.
Thirdly, once again the BJP (read Prime Minister Narendra Modi) will be donning its electoral warpaint for another round of state assembly elections—in one as an incumbent to hold onto the hugely prestigious state of Gujarat and in Himachal Pradesh as the challenger to its principal rival, the incumbent Congress. Though both are primarily two-party states entailing a direct contest between the Congress and the BJP, expect the rest of the opposition to use this as a dress rehearsal to deal with the Modi phenomenon in the 2019 face-off.
Fourthly, the Indian economy is at the crossroads. Actually it has been so for the last two years; yes, it has bottomed out after the free fall from 2010, but a consistent recovery still seems elusive. Major indicators like growth in bank credit (lowest in 60 years), demand for electricity, growth in rail freight and so on are causing serious concern.
However, if the domestic economy is a cause for worry, then there seems to be an unexpected boost from the world economy—exactly why Indian exports after declining for almost two straight years are suddenly exhibiting a recovery of sorts. All of a sudden there seem to be some incipient strains of a global recovery, which gives rise to the hope of providing the Indian economy crucial tail wind. Its best phase of growth, in the first decade of the new Millennium, could be largely attributed to the momentum it derived from global growth.
The reform initiatives, not the big ticket variety sought after in analyst circles, over the last two years have improved the plumbing of the economy as it were. Any impetus to growth will therefore result in better gains. The fate of the economy is closely tied to the ability to generate jobs, something that will become more crucial as each election looms.
Finally, there is once again an air of uncertainty around the monsoon. Meteorologists suggest that the El Nino, a weather condition which develops due to excessive warming of the Pacific Ocean and often causing disruptions in the build-up of the monsoon, is likely to play out again this year. So far the prediction is that it will kick in only by September, by when the summer monsoon is done.
Erratic rains in the last few years have played havoc with Indian agriculture. There have been two back-to-back droughts (2014-15, 2015-16) and last year southern India suffered first due to the failure of the South-West monsoon in states like Kerala and then later of the North-East monsoon in states like Tamil Nadu and Karnataka.
With Indian agriculture now more risk friendly—with farmers shifting towards horticulture and cash crops like cotton—the downside risks of a bad monsoon magnify.
Clearly then the next 12 months are going to be crucial for the country’s economy and politics. Needless to say whatever happens in the next one year will have a tremendous bearing on the immediate couple of years thereafter. So brace for whatever transpires.
Anil Padmanabhan is executive editor of Mint and writes every week on the intersection of politics and economics. His Twitter handle is @capitalcalculus.