India’s Slower Q1 Growth Rate in Context

Indian growth stood at 7.0 percent year-on-year in the first financial quarter of 2016, a drawback from the 7.5-percent growth seen from the previous cycle, notes AFP. Prime Minister Narendra Modi’s rightist cabinet is responsible for numerous reforms, but outside pressure grows for his administration to do more. Modi aims to take India into double-digit growth territory, and officials expect an 8.1-percent surplus for the year, but experts believe such an assessment may be overly optimistic.

Indian growth stood at 7.0 percent year-on-year in the first financial quarter of 2016, a drawback from the 7.5-percent growth seen from the previous cycle, notes AFP. Prime Minister Narendra Modi’s rightist cabinet is responsible for numerous reforms, but outside pressure grows for his administration to do more. Modi aims to take India into double-digit growth territory, and officials expect an 8.1-percent surplus for the year, but experts believe such an assessment may be overly optimistic.

Given the state of the world economy, 7.0-percent growth is a figure of which some downtrodden governments could only dream. India rivals China in terms of economic growth, and the South Asian nation is set to surpass the Chinese population by 2025. Despite the slowdown, India’s current growth marks the country as the fastest growing major market in the world. Veteran economist Arun Singh believes the 7.0-percent figure is not a bad number to reach, but he stresses that more needs to happen when it comes to investment and reform efforts.

India’s economy has come a long way since previous leadership left the country in a tailspin, but Modi’s policy changes continue to receive praise as a new path forward for his country. However, critics note that his administration needs to keep up the momentum, as economic prosperity slowly seems to slip out of India’s reach.

The Q1 data may seem like a bump in the road, but analysts point to troubling signs that could place India’s economy in peril. First, India’s crucial monsoon season underwhelmed.  The country’s rainfall rates declined by 12 percent.  Second, the power sector continues to be a burden, as many energy firms in India are plagued with debt, combined with a crippling blow of low demand. GDP data also indicates that there was no advancement in any major parts of the economy, but service, insurance and manufacturing sectors boosted India’s lukewarm growth rate. Government spending efforts have shown no fruit, but the central bank slashed rates three times in 2015 to increase lending and investing.

Internal factors aside, India’s fate ties to the international markets in part. For instance, emerging markets have reacted negatively to China’s financial calamity, with many believing the situation is worse than being reported, and markets anticipate Fed policy changes sooner rather than later. India may be an economic powerhouse, but like other emerging markets, it is still susceptible to the contentious climate of the world markets.