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India Is World Bank's Shining Star

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India is World Bank’s shining star as it bucks the slowdown trend of emerging market economies

By
V.V.L.N. Sastry

India is one of the few countries on which the World Bank has upgraded its forecast on 10 June 2015. India has benefited from both good policies and luck, as Narendra Modi’s government has taken advantage of cheap oil to phase out costly fuel subsidies and banked the proceeds; and its Central Bank has sought to establish a more credible inflation-fighting regime. The World Bank expects India to be the fastest-growing major economy in 2015, expanding by 7.5%, and to continue outpacing China in 2016 and 2017. As per World Bank, India is a shining star. Low oil prices have really benefited India.
The World Bank has cut its forecasts for growth across emerging economies this year, warning that they face a double whammy from rising US interest rates from their record low of 0%-0.25%, and lower commodity prices. Growth in emerging economies is expected to be 4.4% in 2015, down from the 4.8% the World Bank was expecting in December. India is the only nation which is expected to grow by 7.5% while the world economy is expected to grow by 2.8% in 2015.
Some of the largest downgrades are for oil-exporting countries, including Nigeria, Angola and Brazil, with South America’s largest economy expected to contract by 1.3% this year. The Bric countries that India normally competes with are struggling somewhat, which allows India to stand out a bit more. The drop in oil prices is also conducive to India, as India is one of the largest importers of oil. The country is described as a “shining star” for tackling its economic problems, thanks to reduced oil prices.
India's current account deficit narrowed sharply to USD 1.3 billion or 0.2% of GDP in Q4 March 2015 from USD 8.3 billion or 1.6% of GDP in Q3 December 2014. On a year-on-year basis, the CAD registered a small increase to USD 1.3 billion in Q4 March 2015 from USD 1.2 billion in Q4 March 2014. The sharp reduction in CAD in Q4 March 2015 on quarter-on-quarter basis was primarily on account of lower trade deficit as net earnings through services and primary income comprising profit, dividend and interest, witnessed a decline on QOQ basis.
India’s indirect tax revenue collections have risen by 37.3% at Rs. 49993 crore in May 2015 over May 2014, as on 10 June 2015. For the same period, central excise collections have seen an increase of 84.2% at Rs. 21809 crore, Customs collections rose 16% to Rs. 15700 crore, and Service Tax collections rose 13.2% at Rs. 12484 crore. The improved indirect tax collections are on account of measures taken by the government including the Central Excise increase on diesel and petrol, increase in clean energy cess, and the withdrawal of exemptions for motor vehicles and consumer durables.
While the World Bank’s perception on India is very positive and in-correlation with the same, the latest indirect tax numbers shows a positive trend and CAD narrowed to 0.2 percent of gross domestic product in the January-March quarter; the correction trend in the Indian stock markets is continuing unabated as India's broader NSE index fell as much as 2 percent on Thursday (11th June 2015) as selling by foreign investors continued amid worries that a likely weak monsoon may delay key reforms and further cuts in borrowing costs.
The 50-share index broke its psychologically important 8,000 level during the day on 11th June 2015, for the first time since May 7, while the 30-share benchmark BSE index lost up to 1.8 percent. Both the indices are heading towards their lowest close in nearly eight months.
The Meteorological Department said in its monsoon update on 10th June 2015 that the southwest monsoon has further advanced into remaining parts of South Interior Karnataka, Tamilnadu and southwest Bay of Bengal and some parts of North Interior Karnataka and Rayalaseema. The June-September southwest monsoon is critical for the country's agriculture because a considerable part of the country's farmland is dependent on the rains for irrigation.
Overseas investors have sold nearly USD 112 million worth of cash shares in June so far, adding to the USD 902.38 million worth shares sold in the previous month, amid worries over slow reforms, retrospective taxes, concerns of a weak monsoon and weak corporate earnings. To an extent, the worries cited by the investors can be negated with the facts that excise collections are showing a steady increasing trend. However, the worries on the part of weak corporate earnings may ease over a period of time and to address the concerns of retrospective taxes, the government has proactively appointed a committee to bring out a viable solution. Though monsoon worries crop up every year, so far, the situation is not alarming as the IMD updates indicate that the monsoon has further advanced.
Even then, the continued fall in Indian Stock Indices is surprising, if one looks at the internals of Indian economy, which are steadily showing a rebound. Foreign investors’ sales may stop as reforms pick up and until the foreign investors flow turns positive, markets may not see a sustainable rally. In the interim, technical factors may come into play to increase pressure on the markets in the near term. However, the outlook for NIFTY for the year end stands at 8, 700.…...

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