What a contrasting two years for Indian economy, 2016 started with hope and ended in despair and in contrast 2017 started in despair but ended with hope. Who could remember that 2016 calendar year first quarter started with India growing at 9.2% while 2017 at 6.1% which plunged to its lowest at 5.7%. That’s where it’s important to look at events which shaped up during this year and in spite of one of the lowest growth year for India in recent years has more of hope at the end of it.
Even before 2016 was hit by demonetisation of high value currency, GDP trend was already heading south, from Jan-Mar @9.2%, to Apr-June @7.9%, Jul-Sep @7.5% and Oct-Dec @7%. Demonetisation was the proverbial last nail. Young 2017 inherited the mess of demonetisation with business confidence at its lowest but ended up by helping markets to grow by 28% from 26595 to 34056.
Demonetisation hardship to public was expected to last beyond March but an early end to general suffering mitigated some of the fears. ATMs and banks were back to normal in dispensing cash which helped people and businesses to quickly get into recovery mode, though impact lasted well into Q1 of the current financial year, with GDP hitting the bottom at 5.7%. Next on card was Budget, with UP election round the corner, there was general expectation that government may go for charity and miss the fiscal deficit target. A budget which not only kept fiscal deficit target sacrosanct but kept in line with long term goals restored investors’ confidence in India story. Thumping UP election victory meant, demons of demonetisation was finally buried for the good. How could we miss our own Rexit story, our own RBI Bond, Mr. Raghuram Rajan was on his way out. There were concern around his replacement and the stance on banks NPA, monetary policy etc. By nominating Mr. Patel to the post was continuation of Rajan mandate (as actual architect was of this policy was Mr. Patel) and implementation of Monetary Policy Committee (MPC) ensured transparent way of setting inflation target (and therefore Interest rate – a continuous bone of contention between RBI & GOI). Under his watch, RBI referred first set of cases under Insolvency & Bankruptcy code (IBC) triggering the final act of clean-up and pushing government to shore up the PSU banks capital, which they promptly announced.
But mother of all was announced mid-night of 30June in the Central hall of Parliament. India was finally going to be a true single market economy with implementation of Good and Services Tax (GST). This was truly revolutionary and as it happens with any such gigantic disruption – Chaos followed. It disrupted in the way business was done till date. Not only people were not ready, it turns out government didn’t helped the cause. Thankfully, system were responsive and during last 6 months, through multiple pro-active interventions, implementation has been stabilised to a large extent albeit taking its toll with Q2 GDP growth rate struggled at 6.3%.
Still, the million dollar question is, was 2017 a glass half full or half empty and depending on your allegiance to government or opposition, there are enough arguments for both sides. If we go by markets, it seems they are on the half full side. Sensex has moved from 26595 to 34056 and rupee strengthen against dollar from 68.32 to 63.83. This has to do more with hope (than facts) reflected in trend. Unlike last year, after hitting bottom in Q1, Q2 GDP moved to 6.3 and with tailwind, this trend is expected to continue with better GDP numbers projected for Q3 and Q4. The increasing trend line is also supported by global growth rate of 3% plus and general positive cue from around the globe. Brexit seems to be on track after initial hic-ups, Trump has got his Tax reforms through, and China is doing well and so on.
While it’s not all great going into 2018. Domestically, there is lurking inflation and political drama unfolding with IBC impact yet to hit Banks in full. Globally, demise of ISIS is followed by Saudi – Iran problem, possibly hitting Crude Oil price. All said and done, 2018 inherited a far better world than 2017 and as we welcome young 2018, let’s say goodbye to our old friend 2017 who helped us all to be more hopeful about our future.