Anything can be Acche Din if you look at it in the right way. Finance Minister Arun Jaitley explained this concept on Monday while discussing his government's decision not to re-promulgate the Land Acquisition ordinance that Prime Minister Narendra Modi had promised would make India a better place. Opposition from Parliament, the public and his own party prompted Modi to let the ordinance disappear, but Jaitley insisted nothing had gone wrong.
“I won’t call it a setback. It is set forward," said Jaitley in a interview to ETNow, expressing a willingness to go a tad too far on the turn-a-weakness-into-a-strength tactic. "Rather than involve ourselves in political stalemate and remain parked in a traffic jam situation, we take the alternative route, which has lesser political cost."
Jaitley's spinning abilities are about to get an even harder workout.
The quartetly figures (April-June) which came in on Monday show an Indian economy that is still sputtering. Gross Domestic Product growth was slower than expected, at 7%, slowing down from the 7.4% of the previous quarter and making it less likely that the ambitious 8+% growth rate for this financial year will actually be achieved.
Other indicators reiterated the general concerns about India. Manufacturing has also slowed from the previous quarter, although it's better than most other Asian countries. The Gross Value Added figure actually was surprisingly high, topping even the GDP number, but that has only gone to remind people about the uncertainty over India's new GDP calculations, which has been received with much skepticism.
Yet there are four major concerns.
First, no one trusts India's data. Ever since New Delhi adjusted its approach to GDP figures, there have been questions about the accuracy of its claims. A 7% GDP growth rate would still mean India's one of the world's fasting growing economies, but as a Bank of America Merrill Lynch report reminds us, under the previous formula India's GDP has only grown around 5%.
Two, actual indicators have become very worrisome. While the fundamentals of the economy look strong, there is little confidence in claims of a recovery. From auto sales to profit at major companies to exports to employment data, none of the details coming in from the actual economy suggest a booming India. The new GDP series is said to include in the informal sector as well, but it would be truly unusual if there were somehow a thriving informal India while the formal economy staggers behind.
Three, the government could be stuck firefighting. Capital expenditure from this government has been very positive, having stuck to its fiscal targets in the last financial year. The government has spent almost 34% of its budgeted plan expenditure in the first four months, April-July. The effect of this is likely to be felt in the next quarter, but it might end up as just firefighting, if industry continues to shrink and agriculture starts displaying the effects of what has been a stealthy drought year.
Four, the bottom could still fall out. India is prepared for the US Federal Reserve to raise its rates, having shored up forex reserves specifically for this contingency. Yet the events in China and their effect on India's markets were a reflection of how the world economy could still seriously shake India. Foreign investors sold a record amount of Indian shares in August, more even than during 2008's financial crisis, and such outflows are still a scary thought in the aftermath of the tape tantrum.
To top everything, the government's reform agenda, from the Land Acquisition Amendment Bill to the Goods and Services Tax seems stuck for the moment. That means that New Delhi might be going ahead with welfare-positive, fiscally troublesome efforts, like increasing the minimum wage and implementing One Rank One Pension for former military servicemen, while failing to put in place the reforms that would boost the economy. Whether that would be a setforward or a setback is for Jaitley to decide.
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“I won’t call it a setback. It is set forward," said Jaitley in a interview to ETNow, expressing a willingness to go a tad too far on the turn-a-weakness-into-a-strength tactic. "Rather than involve ourselves in political stalemate and remain parked in a traffic jam situation, we take the alternative route, which has lesser political cost."
Jaitley's spinning abilities are about to get an even harder workout.
The quartetly figures (April-June) which came in on Monday show an Indian economy that is still sputtering. Gross Domestic Product growth was slower than expected, at 7%, slowing down from the 7.4% of the previous quarter and making it less likely that the ambitious 8+% growth rate for this financial year will actually be achieved.
Other indicators reiterated the general concerns about India. Manufacturing has also slowed from the previous quarter, although it's better than most other Asian countries. The Gross Value Added figure actually was surprisingly high, topping even the GDP number, but that has only gone to remind people about the uncertainty over India's new GDP calculations, which has been received with much skepticism.
In some ways, India is in an odd position. It is still one of the more attractive investment destinations for others to invest in because the fundamentals remain fairly strong and the government as well as the central bank have done much to shore up its specifics. This means that balance of payments, foreign exchange reserves and the current account deficit are in a comfortable place, despite the global volatility after China's shenanigans last week. These numbers have been so good that India has been pitching for a ratings upgrade by Standard and Poor's.
Yet there are four major concerns.
First, no one trusts India's data. Ever since New Delhi adjusted its approach to GDP figures, there have been questions about the accuracy of its claims. A 7% GDP growth rate would still mean India's one of the world's fasting growing economies, but as a Bank of America Merrill Lynch report reminds us, under the previous formula India's GDP has only grown around 5%.
Two, actual indicators have become very worrisome. While the fundamentals of the economy look strong, there is little confidence in claims of a recovery. From auto sales to profit at major companies to exports to employment data, none of the details coming in from the actual economy suggest a booming India. The new GDP series is said to include in the informal sector as well, but it would be truly unusual if there were somehow a thriving informal India while the formal economy staggers behind.
Three, the government could be stuck firefighting. Capital expenditure from this government has been very positive, having stuck to its fiscal targets in the last financial year. The government has spent almost 34% of its budgeted plan expenditure in the first four months, April-July. The effect of this is likely to be felt in the next quarter, but it might end up as just firefighting, if industry continues to shrink and agriculture starts displaying the effects of what has been a stealthy drought year.
Four, the bottom could still fall out. India is prepared for the US Federal Reserve to raise its rates, having shored up forex reserves specifically for this contingency. Yet the events in China and their effect on India's markets were a reflection of how the world economy could still seriously shake India. Foreign investors sold a record amount of Indian shares in August, more even than during 2008's financial crisis, and such outflows are still a scary thought in the aftermath of the tape tantrum.
To top everything, the government's reform agenda, from the Land Acquisition Amendment Bill to the Goods and Services Tax seems stuck for the moment. That means that New Delhi might be going ahead with welfare-positive, fiscally troublesome efforts, like increasing the minimum wage and implementing One Rank One Pension for former military servicemen, while failing to put in place the reforms that would boost the economy. Whether that would be a setforward or a setback is for Jaitley to decide.