The Indian Economy outlook
You’ve just scooped one of the bigger, life-changing Lottery prizes: millions beyond measure, and then catch breaking news that Donald Trump’s been struck mute and blocked from Twitter: but then Kwik Fit calls, your car has failed its MOT and needs new brake pads. How do you feel? Stricken with gloom because of the car or happy that everything else is better beyond compare? Of course, you’re happy …we take small setbacks in our stride when the world smiles. So how odd it was to read gloom-laden reactions to this month’s IMF Report that India’s 2020 growth forecast has been cut by 0.3% to a mere 7%. How odd, when GDP in the UK is projected to be 1.3% for the same year and Mr. Trump’s America will stumble along at 2%.
The economy will only expand by 7% in 2020...in the words of Kylie Minogue, we should be so lucky.
And then consider the reason given by the IMF for the “downgrade”: weakening domestic demand. This is India: the country with the fastest-growing population on the planet, increasingly affluent and increasingly switched onto the Internet’s newest consumer technologies (think Flipkart which now has a market capitalisation of $22 Billion). And assuming even an average boost from the projected 7% expansion of the subcontinent’s economy next year, these are trends are hardly likely to weaken.
Perhaps that’s why the IMF report also includes the surprisingly coy suggestion in its report that it expects “some of this to improve in the near term with a more accommodative monetary and fiscal policy on the part of the Indian Government”. It’s as though the IMF had put pen to paper before this month’s Union Budget but still correctly predicted what it would say because the Budget does indeed include significant monetary and fiscal initiatives on the part of the Modi Government: greater access to external savings that will ease pressure on domestic reserves and boost capital growth, increased use of public-private partnerships, an ambitious disinvestment programme and a fiscal deficit target set at 3.3% of GDP.
And added to all that, the Reserve Bank of India last month cut policy rates for the third time running: reducing the key rate by 25 basis points and altering its public stance on monetary policy from neutral to accommodating. Given inflation on the subcontinent came in at a lower than projected 3.18% in June, analysts are also expecting a further cut in rates at the next review scheduled for 7 August which means consumer spending trends are much more likely to strengthen than weaken over the medium term, whatever the IMF might think. Perhaps the Report’s author had just taken a call from Kwik Fit?
But for those still intent on scrambling in the dust for economic gloom, look north from the subcontinent to China: still enmeshed in its futile trade war with the United States following a further breakdown of bilateral talks in May. The United States has now increased tariffs on its imports from China to between 10% and 25% on $200 Billion worth of goods with threats of a further crippling $300 Billion to come. And, utterly predictably China, has responded with $60 Billion worth of its tariffs. Now that has to be unmitigated bad news…even if Donald Trump had lost his Twitter access.
Red Ribbon has been specialising in India’s Markets since the company was founded more than a decade ago, bringing unparalleled expertise to its investment policies on the subcontinent with specialist sectoral advisers working from it’s Head Office in London in conjunction with more than a hundred local experts on the ground in the subcontinent itself. And by drawing on that body of expertise it offers investors an opportunity to secure above market rate returns in this, the fastest-growing large economy in the World.
Like the author, I was surprised by the slightly gloomy reaction to this month’s IMF report which predicts economic growth for the subcontinent at more than four times the rate of the UK and more than double expected growth in the US next year. It’s certainly difficult to find any dark clouds in such an optimistic outlook and particularly difficult to pin them on India’s resurgent consumer markets which are now leading the world in so many sectors.
The recent Union Budget will, I’m sure, reinvigorate those markets still further so perhaps whoever wrote the Report should have waited a week or so before putting pen to paper…
Whatever the reasons, I’m sure the UK Treasury and the Fed in Washington would love to have GDP growing at ONLY 7% annually.