Has PM Modi Turned Indian Economy Around?
Is Modi government's honeymoon already over on its first anniversary at the helm? Has the Indian economy really turned around? Is it really growing faster than China? Are Indian businesses doing better under the new government? Are investors more excited about India's prospects? Has Indian currency recovered to levels before its collapse in 2013? Is India any cleaner than it was last year? To answer these questions, let's look at some data:
1. Revision of GDP methodology by India's Central Statistical Office (CSO) to show it is growing faster than China has drawn serious skepticism, even derision by serious economists around the world. While India's boosters in the West are not only buying but applauding the new figures, Indian policy professionals at the nation's Central Bank and the Finance ministry are having a very hard time believing the new and improved GDP brought to the world by Indian government. Dissenters include Morgan Stanley's Ruchir Sharma, an Indian-American, who has called the new numbers a "bad joke" aimed at a "wholesale rewriting of history".
2. India's exports are continuing to drop. The trade data shows a sharper slowdown (21%) in exports than in imports (13%, due to lower oil prices) for March, 2015. Exports are down another 13.96% in April 2015. There is an overall decline in both for the year too, according to Seeking Alpha.
3. Large scale manufacturing in India continues to disappoint. Growth slowed in April 2015, according to HSBC India Manufacturing Purchasing Managers Index (PMI) data. At 51.3 in April, down from 52.1 in March, the headline PMI points to slowing demand.
4. Mumbai stocks are among the worst performing in emerging markets. FII (foreign institutional investments) net outflows gave been of the order of Indian Rs 125 billion (about US$ 2 billion) over the past month. The stock market index has seen the biggest correction of 10 per cent in a short time, according to India's First Post.
5. In spite of Prime Minister Modi's high-profile campaign to improve hygiene, India has been ranked near the bottom on access to clean water and sanitation. India has ranked 92 on Water, Sanitation and Hygiene (WASH) Index developed by The Water Institute at the University of North Carolina at Chapel Hill's Gillings School of Global Public Health in the US, far below Pakistan which ranked near the top in 5th position.
India's Economic Times has recently reported results of a survey of top CEOs. Majority of them say that demand is depressed. "The bonhomie and cheer that greeted the arrival of the Modi government is replaced by a sombre mood and a grim acknowledgement of the realities of doing business in India," reports ET, as it captures the sentiment of the CEOs. The largest engineering conglomerate L and T has said some of its plants are idle as demand for capital goods is very weak. The Aditya Birla Group had deferred its revenue target of $65 billion by 3 years, to 2018.
A recent piece titled "Why India is Not A Buy in Current Environment" published by Seeking Alpha summarizes the current Indian situation as follows:
"While there are some who consider India to be the best emerging market and recommend it as such, my own assessment is different. Whether it's relatively high valuations, weak fundamentals with persistent deficits, government bonds under pressure, weakening currency, rebounding oil prices, declining confidence in the government and so on, India is facing a ton of headwinds going forward. Far too many to be a number one pick among emerging markets."
Modi government has to turn some of its election promises into action. Mr. Modi cannot rely on the benefit of the doubt because his honeymoon period is now over. He will be judged on what he is able to accomplish.
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