Wednesday, 7 October 2015

Is India falling prey to a global slowdown?

Not withstanding strong fundamentals, Asia’s third biggest economy seems to have succumbed to a global rout amidst fears over China’s economy.  Growth has faded across both the manufacturing and service sectors, fully justifying the Reserve Bank of India’s aggressive 50 basis points interest rate cut last week, as softening inflation leaves ample leeway for monetary easing.

India’s services activity expanded at a weaker clip in the month of September as demand eased amidst tough economic conditions. Meanwhile, India’s manufacturing activity also expanded at the slowest pace in seven months in September as factories boosted output at weaker rates amidst waning demand, signaling a loss of momentum in the Indian economy.

India’s services activity gauge fell from 51.8 in August to 51.3 in September, whereas the gauge measuring manufacturing activity in India slid to 51.2 in September from 52.3 in August.

Adding to the economy’s setback, the Washington based lender, International Monetary Fund (IMF) has cut its growth forecast for India to 7.3 per cent from 7.5 per cent in FY 2015-16 predicted earlier.

Since the beginning of last month, forecasts on India’s economic growth by various agencies have been mostly negative, however, the overall picture does not look too gloomy as key reforms of Modi government along with RBI’s dovish stance may bolster economic growth and accelerate investment cycle.

Further, the Prime Minister Narendra Modi’s assurance that the stalled Goods and Services (GST) reform amidst Parliamentary logjam, will be rolled out in 2016, to improve the investment climate in the country will provide the much needed rest on the growth front. The governments’ big thrust area is to improve and expand manufacturing competitiveness of India and it has undertaken numerous initiatives to further enhance the ease of doing business in India.

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