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Why Modi’s 100-days in power are worth celebrating

The News International Team

As the Narendra Modi government completes its 100-days in power, more economic indicators are pointing towards an improvement rather than those that are lagging.

India’s economy likely grew at its fastest in two years between April and June, according to a Reuters poll, as improved sentiment after Narendra Modi’s election victory in the middle of the quarter coincided with a rebound in investment, manufacturing and construction.

Asia’s third largest economy likely grew 5.3 percent in the first quarter of this fiscal year (April-March), up from 4.6 percent in January-March, according to the median consensus of over 40 economists surveyed by Reuters last week. That would be the fastest since the quarter that ended in March 2012 and reflects the upturn in factory activity during recent months.

Finance Secretary Arvind Mayaram said growth is on course to recover to about 5.8 percent in the year to March 2015, up from 4.7 percent last year – the second year of growth below 5 percent, too slow a rate to provide jobs for the large numbers entering India’s labour force.

Recent economic data does point to a nascent recovery: industrial production is having its best run since last September, infrastructure output growth is at a nine-month high and manufacturing activity is growing at its fastest for 17 months.

Capital goods, a leading indicator for investment activity, logged a significant 13.9 percent rise in output in the first quarter of FY15. Indian manufacturing activity grew at its quickest pace in 17 months in July as order books swelled, marking the ninth consecutive month of expansion according to the HSBC Purchasing Managers’ Index (PMI) survey.

Car sales, a proxy for consumer demand, are up 10 percent in June-July compared to a decline of 3 percent same period last year. However, two-wheeler sales haven’t seen any major uptick, stable at 13 percent year-to-date. Toll collections (like-to-like) at 18 road projects grew at nine-quarter high pace of 13 percent (YoY) in Q1FY15.  The domestic passenger traffic at airports was up 13 percent (YoY) in June, which is a 7-month high.  

Rains improved last month, and there are forecasts for a stronger second half to the four-month monsoon running from June through September. Oil prices have also hit a 14-month low on plentiful supplies and weak demand.

The RBI’s consumer sentiment index future expectations index has climbed to 123 from 115 at March of this year and a low of 91 it saw on September 2013. “Naukri jobspeak” index is up an average 24 percent over the May-July 2014 period. Salaries in recent months have gone up by up to 60 percent compared to last year in some industries with perks like sign-on bonuses, stock options and even counter offers making a comeback, experts told CNBC.

The domestic mutual funds inflows of USD 3.3 billion over the May-July period also have been a big change from outflows of USD 1.6 billion over the pervious 12-months.  

Inflation, the big sore point for the economy, is expected to ease going forward, though periodic spikes due to high food prices have kept the RBI on its toes. The retail inflation number rose to 7.96 percent in July from 7.46 percent in June, and was largely on account of fruits and vegetable items (which increased by 22.48 percent and 16.88 percent respectively).

The RBI, which sees little impact of the deficient monsoons on the economy, has set its sights on inflation at 6 percent by January 2016 (with risks towards upside), therefore any chances of interest rate cuts seem dim.  

In terms of lags, the same store sales growth is down 5 percent (on average) and residential property sales is down approximately 25 percent (YoY). The long distance railway passenger traffic volumes have declined 4 percent in July, compared to same period last year, despite a weak base. The staple sales growth has been in 11-12 percent range for the past three quarters.

India: A USD 4.5 trillion economy

The present government’s effort to expedite major reforms and their successful implementation could push India’s gross domestic product (GDP) to over USD 4.5 trillion by FY20, a Dun & Bradstreet report last week said. According to the global business information, knowledge and insight provider, India is likely to achieve an average growth rate of around 7.5 per cent during FY15-FY20.

“These are exciting times for India with the ushering in of a new majority government at the Centre after three decades,” Dun & Bradstreet India Senior Economist Arun Singh said adding that the government has hitherto relayed the right signals, which has only heightened the sense of exuberance amongst India Inc.


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