Good days ahead for economy

Shivaji Sarkar
After a long time, amid slow recovery, international rating agencies have said that the Indian economy is recovering. The economic revival was possible only because of a change in policy ever since the Narendra Modi Government came to power. The NDA is keen to put the economy back on track.
The improvement, said international rating agency Moody’s Investors Service, might be visible in less than two years. They also said that they were prepared to change India’s rating. The strength they see in the Indian economy is because of a positive policy approach of the Modi Government.
“India has a good chance of outperforming other emerging markets in the next one year as the economy is on the verge of strong recovery”, said Ridham Desai, managing director, Morgan Stanley India. He said that India’s relative dividend yield is best in terms of valuation in the past eight years, while our fiscal and monetary policy, in terms of flexibility, is superior among all emerging markets.
“The Goods and Services Tax Bill will have a positive impact on growth and tax revenues over the medium-term, supporting the sovereign’s credit profile”, the Moody’s said while counting other positives. It was, however, a bit skeptical about changing the rating immediately, though it said that in the course of time, they feel, it would improve.
The Finance Ministry has raised questions about the methodology adopted by Moody’s and has said that the global agency has ignored reforms initiated by the Government. The Ministry’s concern may be genuine. But one must see the change in outlook that is more positive today than sometime back. Moody’s statements needs to be seen as a strength that is likely to pave the way for future growth. Overall, rating agencies are not gloomy as they were two years back.
Despite severe problems that afflict the banking sector, Moody’s has noted that banks are moving past the worst of its asset quality and the outlook is likely to be stable over the next 12 to 18 months.
There are a lot of problems plaguing the banking sector. The gross non-performing assets (loans that turn unproductive) of 12 banks have crossed 10 per cent. The positive is that as more credit is being given, chances of recovery is likely to improve. Moreover, due to inflation, while the banks have reduced interest rates on deposits, they have not changed the rates on borrowings. Simply, fatter margins will generate profits that is much-needed to provide for bad loans. Besides, the Government is shaking up the top management and has readied a bankruptcy reform that would make it easier to foreclose.
Having inherited a messy economy, it is not so easy to put the economy on an upward trajectory. But recent results of various companies indicate the positive, though their performance in financial terms is stated to be less than ordinary.
India is trying to massively build its productive capacity. Its growth remains one of the best in the world at near 7.5 per cent.
The fact that India is growing, despite its banking problems, exemplifies how it could accelerate while addressing those problems. Bank lending is bound to pick up for
two reasons.
The balance sheet of banks will improve as corporate capital demand intensifieswith a growth in the manufacturing sector as the demand is indicated to increase with better yield during this Kharif season in the wake of good monsoon. A significant aspect is that over seven per cent of the growth comes without financial exuberance. Once that happens, the economy will grow faster.
Recent indications from China too hint at a turnover in India. Chinese Government’s mouthpiece, Global Times, said that China has started to feel the heat of Modi’s ‘Make in India’ and a host of other programmes. Many Chinese companies have shifted their manufacturing base to India. Recently, many smartphone manufacturing producers announced the shifting of their base to India.
The Chinese industry is facing increasing competition from India. The Middle Kingdom is also facing a rise in production expenses. China recorded the largest real salary growth of 10.6 per cent since 2008 which is likely to rise.
The newspaper notes that production costs now are more favourable for India. Wages have risen by 0.2 per cent during the past eight years. Comparatively, cheaper labour and initiatives of the Modi Government, on various industrial fronts, including easier finance for start-ups and other corporate, are creating difficulties for Chinese manufacturers. The Global Times opined that the Chinese industry has to reduce its dependence on Government doles and investments.
Concerns have also been raised over development. Though China is developing, its infrastructure, like roads and flyways are growing at a faster pace, its overall economy is slowing down. Government investments in these sectors are draining the economy. It also Xnotes that the quality of such projects are also not as per standards. In many cases, the concept of projects has been questioned. Some roads, built to ease traffic congestion, have failed to achieve the object, while many others are located in places which remain under utilised.
The Chinese public sector has come under severe debt strain. Even its railways and other units are unable to service the debt. All of these indicate that the policy initiatives taken by India are having an impact on Beijing.
A major objective of India’s foreign relations has been to leverage international partnerships to advance India’s domestic development.
This includes improving technological access, sourcing capital, adopting best practices, gaining market access, and securing natural resources. Greenfield foreign direct investment has already seen a jump – India has surpassed China. Some new international collaborative efforts, such as Japan’s low-cost loan for a high-speed rail line have immense potential like high-profile Indian metro and airport projects.
The recently amended tax treaty with Mauritius is but one example of how diplomacy can be used to benefit both investors and the Government, and potentially increase India’s tax base.
The extension of lines of credit to Africa and Iran, promises to increase business opportunities for Indian firms. And securing buy-in form some US silicon valley corporations securing in increasing Internet access in India marks another effort at advancing national development. So what the rating agencies are viewing needs to been seen in positive perspective. The Indian economy has the strength and will change for the better.
(The writer is a senior journalist)

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