India in context of IMF slowdown expectations
IMF recently published it’s world economic outlook and basically they are expecting a slowdown. One year ago economic activity was accelerating at a good pace and it was projected to grow at 3.9% in 2018 and 2019. There was a drastic change in several things like US-China trade war, macroeconomic stress in Argentina and Turkey, BREXIT issue not being shorted out, tighter credit policies in China, and financial tightening and normalization of monetary policy in major developed economies have all contributed to a weakened global expansion.
A slight recovery is expected in second half of 2019 as US Federal Reserve signaled that it will halt it’s interest rate increase for the rest of the year. US-China trade tension will also ease out a bit and probably they will come to a conclusion for trade agreement to take shape. The contribution of emerging market and developing economy like India will increase beyond 2020 and growth will also stabilize with expectation of rebound from Argentina and Turkey.
In Indian context 2019 Lok sabha election results which is scheduled to be announced on 23rd May will play a key role in growth and development of country, as various economic reform steps were taken by government in previous tenure. GST and Demonetization was a bitter pill taken and the outcome is yet to be reflected in economic growth. Traces of economic growth is already being seen but the real shining colour is yet to be spurt out.
Many loans which were as NPAs were written off in previous several quarters and capital infusion by government in various PSU banks were also a good step taken towards betterment of economic conditions. Stock Market has been very volatile in recent days and volatility index IND VIX is hovering around in a higher trajectory. IND VIX is expected to remain same for next few months as election results and then budget will be like a trigger for the volatility.
Inflation in recent past is being in constant check and low inflation is one of the greatest achievement by current Modi government. But lower inflation should not come at cost of development, as RBI’s major role is to maintain the rate of growth and also keep a check on inflation. In previous bi-monthly policy interest rate were reduced again and further easing of interest rates will not be easy now. Industrial growth has been slowed down and due to lower inflation farmer’s income has also not grown at a good pace. Jobs in informal economy has grown but several question has been raised on government on this issue.
India has a problem of underemployment not unemployment. Crude oil factor is also a major issue for India as from 2nd of May 2019 India will not be able to purchase Iranian oil due to sanction by US government on Iran. Although increase in production by Saudi Arabia will fulfil our needs but purchasing cost will definitely increase and that will be a negative for the economic growth. Lower crude oil prices was one of the major beneficial factor in recent times but if prices moves up higher then it will be concern for us.
India majorly is an agrarian economy and steps to enhance farmer’s economic growth should be first motto of the forth coming government but that should also not impact middle class people. As increasing tax burden on middle class will also not work as a solution for growth and development. Stock market has been euphoric in recent past and is expecting a repeat of one more term of Modi government. Next five years will be challenging for the forthcoming government as status of various government owned sectors are facing a financial crunch either it is BSNL in telecom sector or Air India in Airlines. Indian Post has also reported a major loss in last financial year.
All these major issues will be addressed in next five years. One should also not forget IL&FS default case as this should also be shorted out in coming years. IL&FS issue has been well handled by the government and ripple effect has also been controlled. There is a high chances of setbacks from different sources but one thing for sure is that India will triumph all these difficulties and will emerge as a leader in Asia, but for that a strong and stable government is the need of the hour.