The Indian economy of 2017 can tell us about the next year


Narendra Modi, India’s prime minister, faces one of the toughest economic years of 2017. The BBC’s Sameer Hashmi looks back at this year’s main economic moment, forecasting the situation in 2018.

Just a year ago, India seemed poised to become an important engine of global economic growth. It was the world’s fastest growing economy in 2016, and even more than the current slowdown in China.

India has been hailed as a bright spot in the global economic downturn. But as India’s economy slumps, that narrative has changed in 2017.

From January to December 2016, it was up more than 7% from a year earlier.

It even hit 7.9% in the first quarter.

But in a quarter (april-june 2017), it fell to 5.7% to a three-year low

Two big decisions on economic policy have had a serious impact on 2017. The first was the sudden cancellation of nearly 86 percent of circulation cash in November 2016, which lasted until 2017.

The second is the small issue of the biggest tax reform since independence – in June 2017, a single commodity and services tax (GST) replaced numerous federal and state taxes.

But 2017 does not bring bad news to the government of modi’s BJP, which came to power in 2014. There have also been significant successes, including a 30-point jump to the world bank’s top 100 “ease of doing business” index.

Then, Moody’s, the global credit rating agency, upgraded India’s sovereign credit rating for the first time since 2004.

India’s stock market was the world’s best-performing – more than 30 per cent year-on-year.

The federal government also announced that India, for India’s public sector Banks offer $32 billion (23.7 billion pounds) rescue plan, the bank has been troubled by increasing of non-performing loans, distressed assets or because it is well known.

But overall, it is a tough year, and Mr Modi is still facing a lot of challenges in 2018.

To accelerate the growth

Accelerating economic growth will be the main goal of the federal government in 2018. While most analysts expect the recovery to be slow, there is a consensus that 2017 will be better than 2017.

“There will be a recovery, as the shock from the cash ban [the 2016 Indian rupee ban] and the consumption tax will naturally fade,” said Sajjid Chinoy, chief Asia economist at jpmorgan.

In order to simplify the implementation of the goods and services tax, the government has announced some changes in the past few months. It has also revised the tax rate on goods and services for 178 goods and services after criticising the maintenance of high tariffs.

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“2017 is the year of the GST economic transformation,” said Madan Sabnavis, chief economist at the Indian rating agency CARE ratings. These foundations are a necessary condition for sustainable growth in the coming years.

The international monetary fund estimates that growth in India’s next fiscal year (April 2018 to March 2017) will reach 7.4 per cent. It has already set growth at 7.7%.

Unemployment growth

Despite promising economic growth next year, the biggest obstacle facing the government is job creation.

India is the world’s second most populous country and needs to create 12 million jobs a year to absorb young workers.

But small businesses were still plagued by the rupee’s ban in November 2016, when they were again affected by the consumption tax. Many of them have been closed, resulting in millions of people, especially in the unorganized sector, unemployed.

India’s agriculture, construction and small businesses are the biggest employers because they are labour-intensive. But these three industries have been trying to create jobs in recent years.

Charts showing trend in India’s growth, how its growth compares to that of other emerging economies and what percent of GDP it spends on education and health, based on a new OECD report. MCT 2011

Job creation is a prominent red mark on modi’s economic record.

While most experts see it as a long-term economic issue, they want the government to take steps in 2018 to focus on the 2019 parliamentary elections.

“We can expect the government to provide some incentives for small businesses and industries such as agriculture and construction to bring in some jobs,” says Mr Chinoy.

Oil prices are rising and inflation is rising

Rising crude prices and low private investment are other big challenges, according to Mayuresh Joshi, vice President of mumbai-based brokerage Angel Broking.

He said higher crude oil prices would affect government finances and lead to higher inflation, which has been below the central bank’s target of 4 per cent in the same period last year.

India imports more than 70 percent of its oil to meet domestic demand. With global crude oil prices rising, the government has two options – it can increase retail prices or pay the difference.

Mr Sabnavis said: “the government may not be willing to pass the full price hike on to consumers in just a year’s elections, which would be an unwelcome move.

Agricultural problems

In 2017, several peasant protests across the country are marked by this. The agricultural sector has been struggling, with farm incomes declining over the past few years.

More than half of India’s population depends on agriculture for income. Millions of farmers have not yet been able to repay their loans, causing more pain.

Some states, such as uttar pradesh in the north and maharashtra in the west, have announced a loan waiver programme for farmers, but there are also problems with implementation.

Mr Sabnavis said: “Mr Modi government actually can do many things, because agriculture is the main body, a country need to deal with the state governments, but it does give the federal government created a problem.

Eight Indian countries will hold local elections in 2018, four of which have large rural populations.

The BJP is in power in three states, so experts believe that if the bp-led federal government does not address the agricultural crisis, it could hurt their chances in the election.

No reform in 2018?

Since taking office, Mr. Modi has won a prize for implementing important economic reforms.

But with economic growth sliding in 2017 and elections in India in 2019, he is expected to remain cautious in the coming year to avoid major reforms.

Mr Joshi said: “the government needs to consolidate all the reforms that have been brought in the last 40 months to ensure that they are properly implemented and that there is no need for further reform.

The government is expected to increase spending on social welfare programs focused on rural India.

2018 will be a decisive year for modi. His government’s handling of the economy will surely affect his prospects for elections in 2019.


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