Two crucial state elections have just been completed, and all eyes will now be on the February Union Budget
The BJP won two important state elections in December – Gujarat and Himachal Pradesh – retaining power albeit with a lower majority in the first and unseating the Congress with a thumping majority in the second. The opposition claimed a moral victory in Gujarat on account of its improved scores but the fact remains that it was the BJP’s sixth consecutive victory in the state extending an unbroken stint of 22 years. Only one other Indian state has ever given a longer mandate to an incumbent (West Bengal, from 1978 to 2011). That said, Mr Modi’s last minute campaigning was a major reason for the win implying that his personal popularity remains the pillar on which the BJP’s success continues to ride. This will remain a critical factor in the 2019 national election as well as the 13 state assembly elections scheduled prior to it.
India’s national digitalisation strategy is back on track after the Supreme Court upheld the linking of Aadhaar with the income tax permanent account number (PAN). Some 140 items, ranging from mobile phone numbers to insurance policies, social welfare payments and post office accounts, are to be linked to a unique identification number by March 31. The Court will consider various privacy challenges to Aadhaar linking in January.
2017 closes with hints of improved momentum after three quarters of sub-7 per cent growth. Q2 FY18 growth was 6.3 per centyoy while restocking by industry after a rundown in the June quarter as the GST approached, saw manufacturing GDP up by 7 per cent yoy growth from 1.2 per cent yoy in the previous quarter. Given the low base of Q3 FY17, the year-on-year measure for real growth in Q3 this year may well touch 7-7.5 per cent. However, full year growth is likely to be closer to 6.5 per cent yoy.
Growth in consumer demand in 2017 was affected by demonetisation and the GST. However, signs of a rebound are evident – November sales for 2-wheelers were up 24 per centyoy from 6.2 per cent ytd for the first 10 months and 3-wheelers were up 66 per cent yoy from 5.5 per cent ytd. Non-oil imports, a proxy for domestic demand were up 24 per cent yoy during April-October against -9 per cent yoy last year – all of which suggests consumer demand should return to 8 per cent + real growth in 2018. This should help GDP growth exceed 7 per cent in FY19.
W i t h d o m e s t i c d e m a n d recovering, inflation jumped to 4.9 per cent yoy in November from 3 per cent ytd for the first 10 months. This would suggest that the RBI is unlikely to cut interest rates in the short term, which should provide continuing support for the Rupee. The currency has generally remained strong through 2017 but is likely to face some depreciation pressures in 2018 as the US unwinding picks up speed. This should help India’s exports whose recovery has been somewhat slow. They were up 9 per cent yoy in April-October 2017 and although that is an improvement over the 0.1 per cent yoy growth in the same period last year, in absolute terms they are still lower than levels achieved in FY13 and FY14.
|Fiscal year starting 1 April
|GDP mp (FY12 series), real growth, %
|Inflation - CPI, yr avg (FY12 series), %
|RBI lending (repo) rate, year end, %
|Rupee to US$1, RBI Ref Rate, yr end
|Sources: 2013-2016 data from the government (NCI, RBI) and CEIC. 2017-2018 forecasts.