On Sunday, January 7, the New York Times ran a front page story titled “Rising Anxiety in India is Piercing Modi’s Aura of Invincibility”. The article discussed the decline in GDP, consumption and consumer confidence and its impact on India and Indians.
A little more than two weeks later, on January 23, Prime Minister Narendra Modi gave the opening address at the Davos World Economic Forum (WEF) in Switzerland. In that address, he declared: “According to the World Bank and IMF, our growth rate is going to be steady and high.”
The question becomes, as the end of the first quarter of 2018 approaches, whether the Times’ more pessimistic or Modi’s more optimistic perspective is correct. The answer from the most recent data and trends indicates that the optimistic view will most likely prevail.
Things are not quite as stunningly bright, as in 2014 right after Modi’s swearing-in as Prime Minister, when I wrote in an article for Foreign Policy magazine: “It is now Modi’s India. And, Modi’s India is a place of grand ambitions, great expectations and high hopes.” But, it looks like there is a lot more sunshine on the horizon than there are clouds in India’s economic future.
Part of the reason for this assessment is that the slowdown in the economy in India was self-induced. It was caused primarily by two governmental policies: demonetisation and the imposition of a Goods and Service Tax (GST).
There are a few negative indicators such as the decline of the Nikkei India Services Business Activity Index to a seven-month low of 47.8 in February. This is however offset by the fact that India’s GDP growth for the last quarter of 2017 was 7.2 per cent — making it the fastest-growing economy in the world for that time period. Combine this with projected GDP growth for India in the 7 to 7.8 per cent range in the current and next fiscal years by various groups, and there is considerable cause for optimism.