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As the Narendra Modi-led NDA government approaches the 100 day mark, the general consensus seems to be that he has not done enough to boost growth or improve administration. To be fair, it’s a bit too early to judge them, but the rhetoric before the election raised expectations that ‘acche din’ were just around the corner. A u-turn in the public mood towards the Modi government is clear from the poor showing by BJP in the recently concluded 18 assembly elections.
However, within the analyst community the government seems to be making the right moves. In a recent report titled ‘Eye on India – Modi Meter, Macquarie Research has given the government an 8.5 out of 10. The research firm ranked the government on four parameters: Economics – 8/10; Foreign Policy – 10/10; Governance – 8/10 and Parliament productivity/politics/state relations – 8/10. Macquarie concludes that with the fall in crude oil prices, the tide is turning for the Indian economy and advises its clients to stay invested in India.
Other research firms too are turning bullish on India and revising their GDP growth numbers upwards. On Wednesday, two ahead of the GDP numbers being officially announced, ratings agency Moody’s raised the first quarter growth estimate to 5.1% from the sub-five levels that has been clocked over the past two years. The report said that an improving economy, coupled with Modi’s strong electoral mandate, provided an ideal platform for the Prime Minister to implement his agenda. Moody’s expects the economy to clock 6% growth in 2015.
Sonal Varma and Aman Mohunta of Nomura are even more bullish than Moody’s, predicting Q1 GDP growth to hit 5.9% per cent annually, compared to their initial estimate of 4.7%. Nomura expects GDP growth of 5.5% and 6.7% per cent in FY2015 and FY2016 (4.7% and 6.3% previously). "We expect the economy to fire on all cylinders in FY2015-16 with a pick-up in private consumption, investment and export demand," Nomura said in its report.
Barclays and Standard Chartered too have increased their expectation of GDP growth to 6%. Standard Chartered in its reports has attributed the revised numbers to improvement in industrial activity and services sector.
Chetan Ahya and Upasan Chachra of Morgan Stanley in their report on the Indian economy say that they see clear signs of growth bottoming out and inflation moderating. They expect GDP growth to rebound to around 5.5% in the June quarter, which should steadily improve to 6.8% by March 2016 quarter. Morgan Stanley believes that in the first stage of recovery government’s policy reforms will help revive the productivity dynamic, bring down the capital-output ratio and improve returns on investment. The most important macro outcome is reviving the productivity dynamic.
Hence, they believe that this initial phase of recovery in growth will be less capital-input-intensive. As returns on investment improve, the corporate sector will be incentivized to lift capital expenditure, thereby leading to the second stage of the recovery. This will place India on a transition path from stagflation to higher growth and lower inflation.
JP Morgan’s Sajjid Chinoy and Toshi Jain have also pegged June GDP growth at 5.5%. JP Morgan has however, pegged FY15 GDP growth at 5.3% as they expect the third quarter numbers to decline to 5.2% on account of poor monsoon and slowing down of government spending in order to control the fiscal deficit target.
