Econintersect: The honeymoon for new Prime Minister Narendra Modi may be over. For three months, April though June 2014, Industrial Production in India averaged almost 4.0% real growth year-over-year. The number for July has fallen to 0.5%. The three consecutive months with y-o-y growth 3.4% or higher was the first such period in nearly three years.
While the Indian economy has been mired in lower economic growth over the past three years, inlfation has been rampant:
The following observations are from Rajesh Kumar Singh, Reuters:
The optimism fanned by Modi’s rise to power has already brought inflows of nearly $14 billion of foreign funds into Indian equities this year as investors bet that his drive to cut red tape will revive stalled projects and underpin the economic recovery.
The 50-share Nifty has gained over 30 percent in U.S. dollar terms this year to become the best-performing equity index in Asia. Goldman Sachs upgraded its target for the index this week, citing optimism over future earnings of Indian firms.
To sustain this euphoria, economists say, Modi must overhaul India’s strained public finances, stringent land acquisition laws, chaotic tax regime and rigid labour rules.
During his first 100 days in office, the new prime minister showed little appetite for such structural changes, and there is concern that sharply higher growth in the last quarter could reduce their urgency.
That could be damaging for an economy that is still hobbled by slack consumption and weak business investment. Persistently high inflation and years of stagnant growth have forced consumers to cut discretionary spending.
Sources:
- Weak industry and stubborn inflation hinder India’s economic recovery (Rajesh Kumar Singh, Reuters, 12 September 2014)
- India Industrial Production (Trading Economics, 14 September 2014)
- India Inflation Rate (Trading Economics, 14 September 2014)
