Indian economy – the focus on reforms

The slow down in the Indian economy has been debated endlessly for the last four months or so. Ever since the growth slipped from a peak of around 7 percent in 2016-17 to less than 5 percent in December 2019. The picture that is being painted is rather bleak.  The economic parameters are predicted to get even worse.  While there is no telling when the cyclical graph will swing up, it would do good to take a look at some of the good things that have been happening. In the din of the naysayers, we have been missing some positives affecting the big picture. While they may not be a remedy for the, situation at hand, it could be a silver lining to an otherwise grey cloud.

There is now more clarity regarding the bankruptcy laws. Earlier any big business group finding itself in trouble  had just to call some high level secretary in the finance ministry and get its problems solved. A company facing financial difficulties would take the help of minister or a senior secretary in the ministry and try to get some conditions waived for the benefit of its troubled business. But after the introduction of the bankruptcy rules, this is no more possible.  No politician or any person holding public office can give succor to an ailing business, however big it may be.  Case in point is the Essar Steel company owned by the Ruias.  Having piled up debt due to operating losses the company is about to be taken over by the Arcelor Mittal group. No political interference has been allowed in this deal. All the heavy political connections of the Ruias have not helped them to keep the ownership of their business. This game is now played by the rules.

The sales figures of Automotive sector has seen some growth for three consecutive months, ending December.  This growth is attributed to the heavy discounts given by various manufacturers during the festive season. Not all the manufacturers have managed to sell more but the overall growth of the sector has been positive.  This sector is considered the bell weather of the economy. Not too much should be read into this trend but the feel good factor definitely gets a boost here.  

One more positive is that the inflation in the economy has been largely controlled. The government has not given in to the temptation of increasing the money supply in the economy in order to kick start spending. Oil prices have been largely favourable for the country and that has helped to keep overall  prices in check.

All is not well in the economy, that is obvious. Indian economy needs structural changes. The government has to sell off its loss making businesses.  One good example is the BPCL sale. This is a profit making PSU. The fact that the government has put it on the anvil shows the commitment of the government to get out of running businesses.  

Another positive is that the accuracy of economic data is being questioned. An overhaul was needed in the  methodology adopted by the various government agencies to gather economic data. A new expert panel will pave the way to improve accuracy in the whole process.   

Job creation is still not happening at the rate it is expected to. But there are indirect forces at work here. The world economy is sluggish and there is uncertainty regarding future investments. The US China trade war is affecting markets in no small measure.

The Indian economy will not be out of the woods in the short term considering that the world economy finds itself in a cyclical trough. But it is encouraging to know that the government has not lost sight of the reforms that it set out to implement. This bodes well for the country in the future.