With the NDA government completing its first year in office, it is time to take stock of what has been accomplished through the last year. While all the excitement and euphoria of one year ago have rightly given way to a recalibrated moderation of expectations, the government, in all fairness, has succeeded reasonably well in preparing the ground for the longer term, sustainable revival of the economy and made significant strides towards creating a more efficiently run administrative machinery and decision-making process.
The government has also addressed policy issues faster and often proactively, giving the much-needed push to the reform process in spite of the challenges it continues to face in passing bills, especially in the upper house of parliament. It has made efforts of promptly putting in place a framework for awarding access to natural resources as evidenced by the successfully concluded coal and spectrum auctions and promoting a sense of performance and accountability in public sector banks compared with liberal capital infusion to cover not-so-good lending practices.
The government is creating a more supportive ecosystem for entrepreneurs and small scale enterprises by setting up the Mudra Bank, which will also create a regulatory and growth framework for the microfinance sector, and above all spearheading several quick schemes and initiatives directed towards achieving a broader and deeper financial inclusion.
Investor sentiment towards the India growth story continues to be positive and over the last one year, we have witnessed strong FII flows both in the debt and equity markets. The GDP growth rate is gradually inching up with low levels of inflation providing a supportive environment for rate cuts in FY15-FY16, potentially by up to 50bp-75bp; the currency has remained largely stable with handsome growth on the country's foreign exchange reserves.
India’s infrastructure story has a long road ahead and will remain key to reviving the manufacturing economy and boosting its competitiveness. The extent of resources locked up in stalled projects is huge and it is imperative for the government to evolve a mechanism to resolve infrastructure driven NPAs and make these investments productive.
We expect a stronger momentum in reforms going forward. This, coupled with the increasing flexibility of the government to push through legislations as the composition of the upper house of parliament changes in favor of the NDA government over its remaining tenor, could result in many of the game changer reforms, including the implementation of GST.
Overall, while those who had misplaced illusions of a dramatic and immediate recovery may have been left somewhat disappointed, they would have surely realised the value in the virtue of patience, the NDA government in it's first year has done reasonably well to get the sluggish economy it inherited, back on track.
The economy has entered into the current fiscal year with strong fundamentals and a macro environment that seems conducive for growth. Although the results of what has been done through the last 12 months may still take a while to become fully visible, the economy is in a sweet spot and poised at the cusp of a strong revival over the next 18-24 months.
(India Ratings & Research A Fitch Group Company)
