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The higher-than-expected 7.6% progress within the quarter ending September 2023 signifies that India’s GDP progress within the first half of 2023-24 now stands at 7.7%. Even when there aren’t any optimistic surprises within the second half of the fiscal 12 months — most analysts imagine there’ll doubtless be none — full 12 months progress for 2023-24 is prone to find yourself increased than the Reserve Financial institution of India’s October projection of 6.5%, including to India’s lead over different main economies on the planet when it comes to GDP progress. Past this apparent however necessary level, what’s the bigger import of the GDP numbers launched on Thursday? Any such evaluation should be achieved protecting in thoughts the truth that these are the final set of GDP numbers earlier than the presentation of the Interim Funds on February 1, which is able to lay out the Modi authorities’s financial plan for the 2024 polls.
Even when the financial system does decelerate within the second half of the fiscal 12 months in step with projections by RBI and impartial analysis corporations, the general financial momentum will nonetheless be wholesome. That is excellent news for the federal government and the Bharatiya Janata Social gathering (BJP). The federal government can be extra assured in persevering with its fiscal consolidation plan even when it means quickly slowing down on the capex entrance to create space for election-related fiscal spending. It’s also excellent news for fairness and bond markets. The not-so-good information is on the financial coverage entrance. Given present progress numbers, RBI’s Financial Coverage Committee (MPC) is unlikely to be perturbed about progress in its December or February conferences, ruling out any rate of interest cuts earlier than the final elections. This can pinch middle-class voters who’ve seen a major improve in mortgage funds during the last 12 months and a half. To make sure, issues might have been a lot worse had geopolitical elements akin to the continued battle in West Asia led to a major improve in crude oil costs.
Does this imply that there aren’t any medium- to long-term challenges for the Indian financial system? Not likely. GDP knowledge reveals that non-public consumption continues to stay weak and it’s authorities spending, particularly in capex that’s nonetheless driving financial momentum. The non-public funding engine remains to be stuttering. Considerations about rural demand, particularly given the uncertainties concerning the impression of El Nino on the summer time and winter crops, stay and may upset the federal government’s fiscal and RBI’s inflation math even within the run-up to the elections. So far as supply-side considerations round meals output and costs are involved, expertise reveals that the Modi authorities has dealt with these challenges fairly nicely over the course of its nine-and-a-half years in workplace. On the query of mass revenue and demand, the federal government’s narrative is prone to be that issues might have been a lot worse had it not been in cost and that it ought to subsequently be given a brand new mandate to make sure the financial system stays in good palms.
Will this narrative have political traction? Markets appear to be shopping for it given the leap in fairness markets a day after GDP and exit ballot numbers — they don’t look very dangerous for the BJP — had been introduced. So far as voters are involved, we are going to know the reply on December 3 when the outcomes for 5 state elections are introduced. In case the BJP doesn’t do very nicely, as was the case in 2018, we will count on a fiscal splurge alongside the traces of the 2019 interim finances.
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