India’s growth pace to pick up as reforms draw investment

Monday, 27 October 2014 00:00 - - {{hitsCtrl.values.hits}}

Reuters: India’s economy will likely grow at its fastest pace in two years in the current fiscal year as Prime Minister Narendra Modi implements reforms to attract investment, a Reuters poll of economists showed on Friday. The after-glow from Modi’s election victory earlier in the year helped India’s economy clock a robust 5.7% growth rate for the quarter ending in June.

Prime Minister Narendra Modi The economy has just lumbered through the longest spell of below-5% growth in a quarter of a century, but forecasts are now predicting that the slump has passed. Hopes of reforms for economic revival from Modi have attracted foreign capital inflows - before the election in May until now - triggering a massive rally in the stock market, making it one of the best performers in Asia so far this year. That optimism looks set to continue. “The outlook is improving and that mostly reflects the fact that the new government has pledged to prioritise economic reforms. First we saw an improvement in sentiment and now it is translating to actual pick-up in activity,” said Tuuli McCully, senior economist at Scotiabank. “Obviously, we really need to see more (reforms). But as of now, I am encouraged by how things are moving.” Over the past month, Modi’s government has stepped up economic reforms, opening up the coal industry to private investors and freeing diesel prices to market forces from government subsidies. The latest Reuters poll of 20 economists taken over the past week shows Asia’s third-largest economy will likely grow 5.5% this fiscal year and 6.4% the next, slightly better than 5.3% and 6.3% expected in the July poll. “India is transitioning away from stagflation conditions, and the much-needed combination of higher real rates, a more friendly investment environment and structural reforms appear to be slowly coming together,” wrote Manoj Pradhan, an economist at Morgan Stanley. However, without big-bang reforms to propel the economy back to a near double-digit growth, economists say, a broader and sustained economic revival will likely remain elusive. Also, the global economy is showing signs of weakening and is expected to weigh on overseas demand for Indian merchandise. Indeed, the economic outlook for two of India’s biggest trading partners - China and the euro zone - has dimmed and is expected to drag on the global economy. Consumer price inflation - the biggest challenge faced by the Reserve Bank of India - cooled to 6.46% last month, the lowest level since this series began in January 2012, from a revised 7.73% in August. But the poll showed consumer prices will average 7.5% this fiscal year and ease to 7.0% next year. “Despite lower inflation prints and the fall in commodity prices, the communication from RBI suggests it will keep monetary policy restrictive in the near term to achieve medium-term price stability,” wrote Rahul Bajoria, economist at Barclays. The RBI is expected to keep its key repo rate steady at 8.0% well into next year, even as a separate Reuters poll in September showed the Sensex would keep setting record highs through to the end of 2015.

Modi takes tea, but no questions, in first press event as PM

Reuters: Prime Minister Narendra Modi took tea, but no questions, on Saturday at his first staged meeting with the press since coming to power five months ago, underscoring the delicate relationship he has with the fourth estate. Modi said he wanted to strengthen ties with journalists and thanked them for reporting on a ‘Clean India’ campaign he launched recently by taking a broom to a rubbish-strewn street in New Delhi. “The prime minister cannot pick up the broom alone,” Modi told invited journalists in New Delhi. “You have turned your pen into a broom, and I think this is a huge service.” The 64-year-old premier has made extensive use of campaign speeches, glitzy policy launches and social media to propagate his message - he has 7.3 million followers on Twitter. But his government has been criticised by commentators for being unwilling to face challenging questions. Five months after Modi took power, the prime minister’s office still has no official spokesperson. After his short statement, Modi dived into the crowd at the office of his nationalist ruling party. Some journalists snapped ‘selfie’ photographs with him on their smartphones. “Today we were seeing a different Modi,” Bhupendra Chaubey, executive editor of CNN IBN news, said from the ice-breaker event. “He’s trying to make a personal connect with the journalists here.”