India, once known as the land of snake charmers, is currently best known for its information technology and business process outsourcing industries. The country also ranks second worldwide in farm output and 12th in nominal factory output. All these factors make the country’s economy the fourth largest in the world, based on purchasing power parity.
Despite its size, India has had its own set of troubles in the past few years – corruption, high current account deficit, high inflation, a weakening rupee and, above all, slow growth that made foreign investors cautious about the country. But things seem to have taken the turn for the better since pro-business prime minister Narendra Modi took to the helm a year ago in May 2014 by an unexpected clear majority – the like of which the country had not seen for nearly 30 years.
Markets got off to a roaring start on the news and rode on expectations that the Mr Modi-led Bharatiya Janata Party (BJP, Indian People’s Party) government would bring about the necessary economic reforms. Hopes rose further with the appointment of Dr Raghuram Rajan, former chief economist at the International Monetary Fund (IMF), as the governor of the Reserve Bank of India (RBI), the country’s central bank. Market analysts believe that the Modi-Rajan duo will bring the country’s economy back on track.
“It’s all relative. We’re coming from a period where the growth was under 5 per cent, so the acceleration to about 7 per cent this year is encouraging,” says Ravi Venkatesan, former chairman of Microsoft India. “When you compare India with other major economies, India’s performance stands out.
The IMF forecasts India’s growth to strengthen from 7.2 per cent in 2014 to 7.5 per cent in both 2015 and 2016, overtaking China’s – for the first time since 1999 – which is projected to slow down to 6.8 per cent. The World Bank also projected India’s growth to accelerate to 7.5 per cent in 2015, but added that on the back of significant acceleration of investment, growth could possibly reach 8 per cent in 2017-18.
Chart 1 shows India’s real GDP forecast from the IMF from 2010 to 2020. The increase is pegged on recent policy reforms and increase in investments.
However, both the forecasts are less optimistic than that of India’s central bank. The RBI projected 7.8 per cent growth in 2015-16 in its recent monetary policy statement of 2015-16. But the most optimistic forecast is from the Modi government at 8.1 per cent to 8.5 per cent for this year.
