Indian economic outlook 2016-17

A huge and complex economy, India is the fastest-growing major economy in the world today.

India, as can be seen through the employment figures, is predominantly an agricultural economy. Since majority of agriculture still depends on the monsoon due to poor irrigation spread, a weak monsoon casts an overall negative spell on the economy. Inflation usually soars up reflecting in higher prices of foodgrains, and consequently the sentiment is hit and spendings may decrease. If a crop fails, then imports of foodgrains also have an impact on the foreign exchange reserves. The overall economic outlook becomes tough, and that is the scene in 2016-17 due to many factors.

Spendings, government or private, have a direct bearing on overall sentiment.

The year 2015 was not too fruitful for Indian agriculture, owing to a poor monsoon. Hence we started off on a dull note in 2016. The first quarter growth was moderate. The economy grew at less than the expected 7% plus growth rate. But with increased government spending, and increased fixed investment the slowdown was, to an extent, arrested but private consumption came down. In the second quarter, the weaknesses witnessed in the first reduced to some extent and the manufacturing & services PMIs increased in August 2016. A private survey shows that in August, India’s manufacturing activity expanded at its fastest rate in the last one year. Manufacturing sales increased in August, with the automobiles sales reaching double digits.

These trends indicate a reversal of the first quarter slow pace of growth. The disbursement of new salaries as per the Seventh Pay Commission recommendations and payment of arrears also helped expectations of increased private consumption. Fortunately, 2016 experienced a satisfactory monsoon as well, bringing cheers to the agricultural sector.

Strengths of the Indian economy

In view of the continuing slowdown in the economic outlook of major world economies, India’s performance is satisfactory. The basic strengths of the Indian economy are its (a) favourable demographics, (b) benefiting from globalisation and outsourcing, (c) positive growth forecasts, (d) diversification of the economy and (e) huge comparative advantage in labour intensive industries (which is now eroding).

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• ##fa-thumbs-o-up##  India crosses USD 300 billion FDI milestone - April 2000 to Sep 2016
• India has firmly established itself as a safe investment destination in the world! Between April 2000 and September 2016, India received Foreign Direct Investment of over USD 300 billion. Thirty three percent of this investment came through the Mauritius route. India has Double Taxation Avoidance Agreement with Mauritius. Although analysts point out that some part of this could be 'round-tripped' funds which are laundered monies. But overall this is a great news for economic activity in India, especially in the short-term post-demonetisation done on Nov.08, 2016.

FDI details in the Department of Industrial Policy and Promotion (DIPP) data, below

Weaknesses and challenges

Presence of strong independent financial institutions like the RBI and SEBI, and a positive government attitude also help the system. However, the Indian economy continues to face many challenges like (a) rising inflation, (b) poor infrastructure, (c) unskilled workforce, (d) negative balance of payments, (e) high budget deficits , (f) high levels of private debts and (g) large scale economic inequality. A lot of these are structural in nature implying the truth that it will only be a long term approach that can solve these.

The government is positive about change. But things move slowly in a giant nation like India. With multiple measures taken by the government, the outlook is changing, and this is partially reflected in the positive forecasts made by various international financial institutions for the growth rate of the Indian economy. All these indicate that India’s GDP will grow at the fastest rate other major economies of the world.

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• Declaring war on black money
• On the night of 08th November 2016, PM Modi declared war on horders of black money, by rendering present currency notes of Rs.500 and Rs.1000 invalid legal tender from midnight. This will have deep ramifications in the coming years. Demonetisation and its aftermath, and the rollout of the GST regime are the big tasks facing the government of India. Both have brought unique challenges. Read our Bodhis on related issues here, here and here.

Here is an excellent introductory level session on Indian economy. Session conducted bilingually (English + Hindi), in 2013/14. Learn and enjoy. For more serious learners, click here to know more about, and enrol in Bodhi Booster Premium for a wealth of content.

Yes, we are the fastest growing economy in the world! Though some experts doubt whether the changed GDP calculation methodology is reflective of the finer truth, the numbers are official, and must be accepted.

There was/is a raging debate on the authenticity of GDP figures, in India. Here are two contrasting perspectives on the same. Click to read (Source : The Economic Times)

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•  ##fa-newspaper-o##  Bodhi News and Analysis - precise and time-saving
• For insightful analyses of news & editorials, tune in to our Bodhi News website regularly. Pointwise analyses for a spectrum of topics from multiple sources, daily facts, headlines and vocabulary words. Download free PDFs. Great for competitive exams preparations and GD-Interviews. Bodhi News - free, forever, for everyone!  ##fa-eye##  Watch analyses   ##fa-headphones## Hear Shrutis   ##fa-question-circle## Solve quizzes

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• Bodhi Links (for deeper study; Caution: some may be external links, some large PDFs)
•  ##chevron-right## FinMin GoI – Economic Outlook 2016-2017 pdf  here ##chevron-right## RBI Monetary Policy Statement August 2016 here ##chevron-right## CMIE IMF report (Sept 2016) here ##chevron-right## What after demoetisation? here ##chevron-right## DIPP data on FDI in India pdf here ##chevron-right## GST regime in India here

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