Being largely integrated with the global economy, India too has not escaped the jitters felt worldwide.
Exports are down sharply and the stock market has taken a beating. That said, the country is relatively much better placed from a global perspective. In the latest World Economic Outlook update of the International Monetary Fund (IMF), India retains its slot as the fastest-growing economy — with GDP projected to grow 7.5 per cent in fiscal 2016 and 2017, from 7.3 per cent in 2015.
The IMF did not change the country’s growth outlook even as it trimmed its forecast for the world, and for the emerging market and developing economies basket. Sure, all is not hunky-dory with the Indian economy but it’s still brighter than the rest.
Unlike several emerging market peers, such as Russia and Brazil that have borne the brunt of the commodity rout due to their heavy dependence on these exports, India as a net importer has benefited. This, along with fiscal control, has meant that the country has done quite well among emerging market and developing economies.
Consider this. The US dollar surged against most currencies last year. But the rupee’s depreciation (about 9 per cent) vis-à-vis the greenback was far lower compared with the 30-plus per cent drop in the Brazilian real and South African rand and the dip of above 20 per cent in the Russian rouble.
Asian peers, such as the Thai baht, Indonesian rupiah and Malaysian ringgit too lost more than the rupee.
Only the Chinese yuan (which is still controlled) and the Philippine peso did better than the rupee.
Inflation, economic growth On inflation too, India has fared quite well. The consumer price rise in the country has been kept mostly under check, thanks in part to falling crude oil prices. In the December quarter, for instance, the consumer price inflation in the country averaged a tad above 5 per cent, compared with the nearly 15 per cent rise in Russia and 10 per cent rise in Brazil. Inflation in other Asian peers, such as China, Thailand, the Philippines and Malaysia, ranged from a negative 1 per cent to plus 2 per cent. Moderate inflation, close to current levels in India, is essential to keep alive the animal instincts of businesses.
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On economic growth, India tops the charts. Despite some moderation, GDP growth in the country in the December quarter was 7.3 per cent, higher than the 6.9 per cent in China. The economies of Russia and Brazil have been contracting and are not expected to do well in the December quarter too. In South Africa, growth was nearly flat in the September quarter.
Thailand, Indonesia and Malaysia grew 3-5 per cent while the Philippines did better at 6 per cent.
From 4-5 per cent levels a couple of years ago, India’s current account deficit as a percentage of GDP shrank to about 1 per cent in the recent September quarter. This is much lower than the near-4 per cent figure of Brazil and South Africa. Also, unlike countries such as Brazil and South Africa, which have raised policy rates, in India rates have come down by 1.25 percentage points over the past year. More cuts are expected this year — this should help economic pick-up.
Finally, despite the global risk aversion which has resulted in foreign fund outflows in recent months, India has managed net positive foreign portfolio investment flows in the equity market over the past year.
This is in contrast to negative flows in countries such as Indonesia, the Philippines and Thailand. Relatively strong macro-indicators should see foreign funds flow back into the Indian markets when the tide turns.