As early signs of global economic recovery begin to emerge, 2018 is likely to script a good story for India. After a decade-long recessionary trend post-Lehman crisis, economic sentiments are visibly up globally. While the US economy is posting sound GDP numbers, Eurozone seems to be gaining its growth momentum back. India, after implementing a slew of structural reforms in 2017, is very well placed to capitalize from this growth uptick going ahead. On macroeconomic front, most indicators remain healthy. While India’s current account deficit numbers remain at a manageable level, possibility of breaching fiscal deficit remains remote. Most importantly, retail inflation remains below RBI’s comfort level of 4% with a likelihood of rate cuts next year.
2018 is likely to be better
“Overall, 2018 is likely to be a better year than 2017. As impact of demonetization fades and GST implementation stabilizes, growth momentum is likely to pick up,”Chief Economist of CRISIL Ratings, D Joshi told The Finapolis. He, however, said private investment would be slow to recover.
Meanwhile, JK Jain, Head of Equity Research at Karvy Stock Broking Ltd, says Indian GDP growth will hinge on recovery of private investment as public investment will not be enough to drive growth alone. “Corporate earnings have improved and a lot of companies have deleveraged their balance sheets. This augurs well for the next investment phase. In all likelihood, private investment is likely to recover this year,” Jain has added.
Despite a temporary blip in consumption demand due to note ban and demonetization, domestic demand has recovered this year, which is going to rise further in coming year. “Consumption-led demand will grow further next year,” says Jain of Karvy Stock Broking. “We remain bullish on consumption theme and see these companies outperforming the market next year,” he adds. Apart from consumption, banking sector is also likely to see recovery with sound credit growth. Notably, in a bid to boost growth, government has announced mega bank recapitalization plans under which Rs 2.11 lakh crore will be infused in public sector banks in next 5 years to clean up their balance sheets and start lending activity.
Though India doesn’t have any reliable data on job growth numbers, job creation has hit a roadblock in 2017 on the back of note ban and other factors. Sectors like textiles, leather industry, telecom and IT has seen job losses this year. “It’s very difficult to predict how job growth will fare in 2018. But, if construction and manufacturing do well, then job creation is definitely on cards,” Joshi of CRISIL Ratings said. He also said that affordable housing space is gaining a lot of traction after implementation of Real Estate Regulation and Development Act (RERA), which will push job creation in this sector.
Despite all these positivity, there are risk factors lurking in the background. “Apart from crude oil prices, revenue collections from GST will determine the growth story in 2018,” Jain of Karvy Stock Broking said. “Domestic factors pulled down Indian growth in 2017. In 2018, international events like rise in US interest rates, crude oil prices and Brexit will determine our growth,” Joshi said. Apart from these economic factors, politics will also play a role in India’s growth story next year as elections in eight legislative assemblies will determine the fate of Modi government.
Also, the second half of the calendar year of 2018 will be when India gets ready for general elections, originally slated around April-May. However, there is a talk that the Modi dispensation may consider advancing the date of general elections. Though this decision on whether or not to go to polls hinges on the outcome of the upcoming elections to the assemblies, the BJP wants to strike the iron when it is hot. For, the Congress and its allies are still in the process of rebooting themselves what with the warm-up being the assembly polls to eight States.
In fact, soon after demonetization, the landslide victory of the BJP in Uttar Pradesh Assembly elections was dubbed as a popular endorsement to the note ban. And, though election issues usually don’t depend on the financial and economic decisions – the defeat of PV Narasimha Rao Regime in 1996 elections is a case in point to buttress this argument, the winning party can dub them either way to suit its convenience.
What’s in store for 2018 is just a conjecture of time. For their part, along with the governments, the people to take a relook, recall , review and hit refresh button if need be on their way forward.