After the worst happenings in one single day, (in absolute terms) of 1625 sensex points and a sharp rupee depreciation of 82 paise against the dollar, now the currency and stocks bounced have back on August 25, gaining 291 points and 55 paise respectively. But even amid the mayhem of August 24,triggered by a slowing Chinese economy and devaluation of the yuan, most economists maintained that the prospects of India’s growth were brighter than those of other emerging markets. The optimism is supported by the IMF’s protections for 2015.Here’s why:
●GDP growth estimated to be 8% in 2015-16
India is considered to be a bright spot in the global economy. Infact, International Monetary Fund (IMF) has said that for the second consecutive year, India will be the world’s fastest growing economy. In its World Economic Outlook Update released, IMF retained India’s growth protection for the current year at 7.5 per cent, which will be higher than China’s 6.8 per cent. It forecast a growth rate of 7.5 per cent for India in 2016 as well, as against China’s 6.3 per cent.
●Improving industrial output
The factory output has accelerated since the last few months. The Index of Industrial production (IIP) which is an index for India which gives the detailed growth of various sectors in the economy such as mining, electricity and manufacturing, grew 3.8 per cent in June from 2.5 per cent in May. There has been a significant pickup in consumer goods rising 6.6 per cent, mostly because of a 16 per cent jump in output of consumer durables such as television sets and refrigerators.
● Healthier government finances
Improved tax collections, led by indirect tax growth of 37.6 per cent during April-July ; lower subsidy bill due to falling oil prices has been a bonus for the government. Experts say our expected savings may be around Rs 1 lakh crore.
●Inflation-both retail and wholesale-under control
While crude oil prices still falling, inflation is still under control and is expected to remain low for a while. Retail inflation also fell to a multi year low in July on account of cheaper prices of food , including vegetables, fruits and cereals of 3.78 per cent.
At a record $355 billion, India is positioned safe vis-a-vis other economies. Foreign currency assets, expressed in dollar terms, include the effect of appreciation and depreciation of non US currencies such as euro, pound and the yen, held in the reserves.
BUT THERE ARE PRESSURE POINTS
● Sluggish credit growth. Growth in non food bank credit off-take slowed to 8.4 per cent in June 2015, compared with 13 per cent in June 2014.
●High bank NPAs estimated at around 5.75 per cent of gross assets.
●Falling exports. Declined 10.3 per cent in July.
●Several companies have stresse balance sheets, particularly infrastructure firms.
●Low demand in construction sector.
●Falling rupee may impact FII inflows; slowing Chinese economy and possible rate hike by US Fed add to market fears.