With In­dia’s econ­omy be­gin­ning to ad­just to de­mon­eti­sa­tion and the sales tax, the out­look is good.

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Busi­ness lead­ers in In­dia are ex­pect­ing the In­dian econ­omy to pick up pace in 2018 as it emerges from the up­heaval caused by the in­tro­duc­tion of a new sales tax and the fall­out of a sur­prise de­mon­eti­sa­tion.

“Year 2017 was more of tough struc­tural mea­sures in­clud­ing de­mon­eti­sa­tion and gen­eral sales tax in­tro­duc­tion,” says Subramanyam Sreenivasaiah, the chief ex­ec­u­tive of As­cent HR, a hu­man re­sources man­age­ment so­lu­tions firm, head­quar­tered in Ban­ga­lore. “We ex­pect the af­ter ef­fects of these mea­sures be­ing ab­sorbed [in 2018] and be­gin to yield re­sults in the form of an en­hanced growth.”

These two par­tic­u­lar struc­tural changes are widely con­sid­ered to be the big­gest fac­tors that have weighed heav­ily on the In­dian econ­omy this year.

Though there is light at the end of the tun­nel and an­a­lysts are hope­ful that 2018 is go­ing to be far more promis­ing.

“We re­main bullish on the growth out­look,” says Sonal Varma, the chief In­dia econ­o­mist at No­mura, who ex­pects the GDP growth to rise to 6.7 per cent in the fourth quar­ter of this year from 6.3 per cent recorded dur­ing the the third quar­ter of 2017. No­mura es­ti­mates a stronger re­bound to

7.5 per cent in 2018.

The IMF’s pro­jec­tions for the In­dian econ­omy are in line with the Ja­panese lender. The fund es­ti­mates that In­dia’s econ­omy will re­cover to 7.4 per cent in 2018.

The con­sen­sus is that In­dia ideally needs to achieve growth fig­ures of around 8 per cent to cre­ate enough jobs for its pop­u­la­tion of about 1.3 bil­lion.

De­spite a slow­down this year, In­dia is poised to over­take the UK and France to be­come the world’s fifth largest econ­omy in 2018, ac­cord­ing to a new re­port by the Cen­tre for Eco­nom­ics and Busi­ness Re­search.

The in­tro­duc­tion of goods and ser­vices tax (GST) in July – con­sid­ered one of the big­gest-ever tax re­forms in the coun­try – which re­placed a va­ri­ety of taxes levied across dif­fer­ent states with a sin­gle sys­tem – has had a huge im­pact. Busi­nesses have strug­gled to tran­si­tion to the new tax regime. Smaller busi­nesses, in par­tic­u­lar, have been hit hard as they are still com­ing to grips with fil­ing pro­cesses and rates un­der the GST. In the longer term, how­ever, a sub­se­quent in­crease in tax rev­enues is ex­pected to give the econ­omy a boost, ac­cord­ing to an­a­lysts.

Mean­while, de­mon­eti­sa­tion – a sur­prise move by In­dian prime min­is­ter Naren­dra Modi, ban­ning the two high­est value bank notes from cir­cu­la­tion in No­vem­ber 2016 – ad­versely im­pacted growth in 2017, strained liq­uid­ity in the mar­ket and af­fected con­sumer sen­ti­ment neg­a­tively.

Those favour­ing the move ar­gue it has long-term eco­nomic ben­e­fits as it dis­cour­ages black money flows, how­ever, many ques­tion the ef­fec­tive­ness and the re­sults of the pol­icy re­form.

“The in­tro­duc­tion of GST and de­mon­eti­sa­tion, could al­ways cre­ate ini­tial chal­lenges but will show pos­i­tive trac­tion to busi­nesses and in­dus­try in years to come,” says BVR Mo­han Reddy, the founder of Cyient, an en­gi­neer­ing ser­vices com­pany in Hy­der­abad.

Moody’s In­vestors Ser­vice’ re­cent rat­ing up­grade for In­dia “is an early sign of pos­i­tive growth in econ­omy in the com­ing quar­ters”, he said.

The US rat­ings agency in No­vem­ber up­graded In­dia’s sov­er­eign rat­ing for the first time in al­most 14 years and changed its out­look from sta­ble to pos­i­tive, cit­ing the re­forms by the In­dian gov­ern­ment, which it said, would ul­ti­mately help the econ­omy. The World Bank’s lat­est re­port also showed In­dia has climbed in its ease of do­ing busi­ness rank­ings to 100 from 130.

How­ever, all is not rosy for the sub­con­ti­nent’s econ­omy and there are some con­cerns as In­dia en­ters the new year. Last week, the gov­ern­ment’s an­nounce­ment of plans to bor­row an ex­tra 500 bil­lion ru­pees (US$7.79bn) through bonds, prompted wor­ries about the coun­try’s fis­cal deficit.

Among the fac­tors that are

ex­pected to add pres­sure on the bud­get is the fi­nance min­istry un­veilng more than 2 tril­lion ru­pees re­cap­i­tal­i­sa­tion plan for the coun­try’s ail­ing state-con­trolled banks. High lev­els of non-per­form­ing as­sets in In­dia’s banks, which are prov­ing to be a bur­den on eco­nomic growth and in­vest­ment, will con­tinue to be an area of con­cern for pol­i­cy­mak­ers.

This month, the IMF warned the re­cap­i­tal­i­sa­tion plan should be car­ried out along­side re­struc­tur­ing and, in some cases, pri­vati­sa­tion of state lenders. The Re­serve Bank of In­dia ex­pects the ra­tio of trou­bled loans port­fo­lio in bank­ing sec­tor to rise to 11.1 per cent by Septem­ber 2018 from 10.2 per cent in Septem­ber 2017.

Mea­sures such as in­creased spend­ing on in­fra­struc­ture, how­ever, are ex­pected to help stim­u­late the econ­omy.

“Pol­i­cy­mak­ers and other key stake­hold­ers have been ac­tively work­ing on steps to boost growth, and to try and re­verse the per­sis­tent eco­nomic weak­ness,” Anis Chakraborty and Umang Ag­gar­wal, both econ­o­mists at Deloitte In­dia, write in their 2018 eco­nomic out­look re­port.

“For in­stance, there has been an in­crease in gov­ern­ment ex­pen­di­ture over the past few quar­ters,” they say.

In­dia has suf­fered “short-term growth pains” this year and there are other el­e­ments that can help boost the econ­omy”, say the econ­o­mists.

“In the com­ing quar­ters it is ex­pected that apart from gov­ern­ment ex­pen­di­ture, it is pri­vate ru­ral con­sump­tion that is likely to drive growth. We also ex­pect that in­vest­ment de­mand might see a ma­jor turn­around in the quar­ters to come as mar­ket ad­just to dis­rup­tions and risk ap­petite im­proves.”

Oth­ers, such as Ro­hit Man­g­lik,the chief ex­ec­u­tive of EduGo­rilla, an In­dian ed­u­ca­tion tech­nol­ogy com­pany, say more re­forms from New Delhi are on the cards .

“I fore­see more gov­ern­ment ini­tia­tives ad­dress­ing the need for re-skilling in the coun­try and giv­ing a cer­tain di­rec­tion to the ed­u­ca­tion sec­tor and the econ­omy as a whole.”

Among the fac­tors likely to be closely watched in In­dia are, key state elec­tions (Megha­laya, Kar­nataka, Mad­hya Pradesh, Ra­jasthan) to be held in 2018, ahead of gen­eral elec­tions in 2019, ac­cord­ing to Mr Man­g­lik.

This month, the rul­ing Bharatiya Janata Party won in Mr Modi’s home state of Gu­jarat, but it did not do as well as it was ex­pected, prompt­ing spec­u­la­tion the gov­ern­ment may strug­gle to win votes in the new year.

The lack­lus­tre per­for­mance may push the rul­ing party to fo­cus more on ar­eas such as farm­ing.

“To­day agri­cul­ture con­trib­utes around 17 per cent to In­dia’s GDP but em­ploys over half of the In­dian work­force, so we can eas­ily imply that agri­cul­ture cur­rently is not as re­mu­ner­a­tive as the ser­vices sec­tor is,” says Han­mantrao Gaik­wad, the chair­man and man­ag­ing di­rec­tor of BVG Life Sciences.

“How­ever, I see that chang­ing in 2018, par­tic­u­larly with the re­newed fo­cus of the gov­ern­ment on agri­cul­ture and al­lied sec­tors.”

Apart from po­lit­i­cal sen­si­tiv­i­ties, a rise in crude prices is another risk to eco­nomic growth in In­dia, says Mr Man­g­lik. In­dia is heav­ily de­pen­dent on oil im­ports, so any in­crease in oil prices hurts In­dia’s fi­nances and adds to com­pa­nies’ costs.

On the global front, there are sev­eral events to watch out for in 2018 that may have reper­cus­sions on In­dian econ­omy. Don­ald Trump’s pres­i­dency, the US trade poli­cies go­ing for­ward and Brexit could all have re­ver­ber­a­tions in In­dia, ac­cord­ing to Mr Man­g­lik.

“The global sce­nario is not yet very pos­i­tive and In­dia would be look­ing in­ward more for growth and con­sump­tion,” says Mr Sreenivasaiah.

The global sce­nario is not yet very pos­i­tive and In­dia would be look­ing in­ward more for growth and con­sump­tion SUBRAMANYAM SREENIVASAIAH As­cent HR


A mar­ket in Kolkata. Scrap­ping high-value bank notes in 2016 strained spend­ing in 2017

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