Home / Politics / Policy /  Ahead of Diwali, good news for Indian economy

New Delhi: A series of economic data has delivered a dose of good news since the middle of last week, making it one of the best times for the Indian economy in several months.

Data ranging from cooling of inflation to a rebound in exports and factory output suggest a favourable shift in the economic climate, recovering from the disruption caused by rollout of goods and services tax (GST) and the aftershocks of the Narendra Modi government’s demonetisation move. The trend gives optimism to experts for an uptick in economic growth rate in the coming quarters.

Retail inflation based on Consumer Price Index (CPI), which was inching up for three months since June, paused in September, while inflation based on Wholesale Price Index (WPI), which was following a similar trend in the period, decelerated in September. The decline in inflation was led by a correction in prices of food.

Industrial production rebounded to a nine-month high in August to 4.3% as manufacturers stepped up production ahead of the festive season. What is good news for the policy makers is that August data suggested a recovery in capital goods production, taken as a proxy for investments in the economy, from a sustained contraction since the beginning of the financial year. It expanded 5.4% in August.

Merchandise exports grew at 25.7% in September, its fastest pace in six months, to $28.6 billion, which helped trade deficit to narrow to a seventh-month low of $8.9 billion.

The data support the optimism of policymakers and experts that the impact of recent structural reforms have begun to wane and economic growth, which had slowed down to 5.7% in the June quarter from 6.1% in the preceding three months, is getting back to normal.

Rajiv Kumar, vice-chairman of federal policy think tank NITI Aayog, said the economic slowdown that began in 2013-14 has bottomed out and that gross domestic product (GDP) is likely to grow 6.9-7% in the current financial year and by 7.5% in 2018-19, PTI reported on Sunday.

Kumar had earlier told Mint that he endorsed the Asian Development Bank’s 2017 GDP growth forecast of 7% for India. The multilateral agency, which follows a calendar year, last month revised its 2017 growth forecast for India to 7% from its July estimate of 7.4% while stating that “short-term disruptions" will “dissipate".

Experts said that while these sets of macroeconomic data indicated some improvement, one needed to watch whether this will sustain over the next few months.

“For instance, the year-on-year pace of growth of electricity generation, Coal India Ltd’s production and automobile production, have declined in September relative to August, which may dampen the rise in Index of Industrial Production in September to some extent. Exports, on the other hand, may witness improvement in volume growth in October, following the decisions of the GST Council," said Aditi Nayar, principal economist, Icra Ltd.

The challenge before the government is to stimulate investments into the Indian economy and to add new jobs. The high level of indebtedness of businesses and bad assets weighing on banks’ ability to lend also need to be resolved.

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