Indian Economy

The Indian economy is set to emerge as the fastest growing economy by 2016
surpassing China. According to the World Bank report India is projected to grow
at 7.7 percent in 2015. The fundamentals of the Indian economy have been
boosted in 2015 by the newly formed Modi Government. The recent initiatives
like Make in India Campaign, the Pradhan Mantri Jan Dhan Yojana which has
transformed lives of millions of Indians In matter of months 15 crore bank
accounts have been opened, 13.5 crore Rupay cards have been issued.
The M&A activity increased in 2014 with deals worth US$ 38.1 billion being
concluded compared to US$ 28.2 billion in 2013 and US$ 35.4 billion in 2012.
The total transaction value for the month of May 2015 was US$ 3.3 billion
involving a total of 115 transactions. In the M&A space, pharma continues to be
the dominant sector amounting to 23 per cent of the total transaction value.
Indias Index of Industrial Production has grew by 4.1 percent in 2015 which was
mainly due to boost in manufacturing growth. But the banking sector is under
pressure due to high NPAs, to stabilize them the government of India has
injected a recapitalization fund of around Rs 70,000 crores. The metal sector is
under heavy stress which is the major borrower from the banks. This is also
affecting the banks business.
The Current Account Deficit reduced sharply to US$ 1.3 billion in Q4 compared to
8.3 per cent in Q3. Indias forex reserves have also stood at all-time high of US$
354.28 billion. But the recent economic slowdown in China has severely
impacted the global economy. The Indian rupee has touched a 2-year low of
66.20 because of the Yuan devaluation. The Chinese markets have crashed
because the citizens have borrowed money for the purpose of speculating in the
stock market.
The Iran Nuclear deal has been a critical pact in which sanctions on Iran have
been lifted and therefore the stockpiles of oil now enter the market creating
excess supply driving the crude oil prices down. This move will be beneficial to
India as we import crude oil heavily for manufacturing, logistics and other
industries.
The Road Ahead
The infrastructure industry has not shown any growth in the recent past due to
bad projects and funding issues. Also due to high interest costs most of the
companies are not able to focus on the expansion as their cash flows are being
eaten up by interest paid. The implementation of Goods and Service Tax will give
tremendous boost to the logistics industry directly and to other sectors indirectly.
The tax burden will also be reduced on the goods and there may be an overall
decrease in taxation rates.
The International Monetary fund and Moodys Investor Service have forecasted
that Indias GDP will at a rate of 7.5 % in 2016 due to improved investor
confidence, lower inflation and better policy reforms. A rate cut by RBI is eminent
in September 2015 which will ease the pressure on banks and will attract more
borrowers which will lead to more growth.