Indian economy in the election year

No question of writing off India's economy. Political rivalry may be there, but can one undermine the internal inherent strengths? Some setback should not lead one to conclude that the rosy future will not be there!
Economic growth eased to 4.6 per cent in the first three quarters of FY14 after clocking 9.3 per cent in FY12 and the just-concluded financial year may log the lowest growth rate in decades.
Let us have a close look at what the international bodies opine. In the latest assessment, rating agency Crisil has said that a stable government post-elections is likely to help the country grow at an average of 6.5 per cent for the next five years.
However, Crisil said it is not the election results which impact the economy, except in improving sentiment, but policies formulated by the new government that will boost growth. Accordingly, a decisive mandate will create an environment for speedy resolution of policy bottlenecks, hasten reforms and increase investment efficiency.
An improvement in investment efficiency, which has fallen drastically over the last two years, is expected to kick in with faster project clearances, implementation of stalled infrastructure projects and resumption of mining activities.
At the same time, Crisil said that achieving an average growth of 6.5 per cent over the next five fiscals is not enough for a country with 269 million people living below the poverty line, which needs to provide jobs to its exploding labour force.
"By not doing enough to accelerate growth, and thus job creation, the country risks setting off a vicious cycle of lower household income, consumption and investment spending that would be so much harder to shake off - not to mention the utter loss of the demographic dividend," the report said. According to Crisil, the task before the new government is clear - the focus has to be on improving the efficiency of the economy by de-bottlenecking it.
Standard & Poor's said in a very recent report: "Our base-case forecast of an average GDP (gross domestic product) growth of 6.5 per cent between FY15 and FY19 is premised on a decisive mandate in the upcoming general elections". Side by side: the IMF [International Monetary Fund] has predicted global growth for the calendar years 2014-18 at 4.0 per cent. This will support investment growth when both domestic and global demand begins to rebound and improve capacity utilisation, thus laying the foundation for the country's entry into a phase of healthier growth, accordingly.
Then what is the exact position?  
After feeble signs of a recovery, industrial production once again slipped into negative zone and contracted 1.9 per cent in February 2014 [mainly due to poor performance in manufacturing, especially capital goods]. Factory output [measured by the index of industrial production (IIP)] showed a decline of 0.1 per cent during the 11-month period from April 2013 to February 2014, compared to a growth of 0.9 per cent in the corresponding period a year back. Industrial output for January, 2014, was revised upwards to a growth of 0.8 per cent from a provisional estimate of 0.1 per cent.
For India, the latest position also exhibits some silver lining - foreign exchange reserves [forex] rose to the highest since December 2011, thanks to foreign institutional investors (FIIs) and non-residential Indian (NRI) funds. Inflow of foreign funds into equities, coupled with record NRI funds and dollar purchases by Reserve Bank of India (RBI), have boosted the forex kitty to over US$ 300-billion-mark, highest since December 2011, in the just-concluded financial year.
For the week to March 28, 2014, the reserves rose by whopping US$ 5.038 billion to US$ 303.673 billion, the second highest in the 2013-14 fiscal. Foreign currency assets also jumped by US$ 5.011 billion to US$ 276.406 billion.
The rise in the forex kitty due to the massive jump in FII funds flows into the equities market, which rose to life-time highs in March, 2014 on expectations of a new, dynamic government.
What is the position in export and import sector? The country's exports, which fell in March by 3.15 per cent, went up in aggregate for the whole financial year 2013-14 by 3.98 per cent.  Trade deficit widened to $10.50 billion in March, 2014, from $8.13 billion in the previous month due to lower exports.
The country's exports fell by 3.15 per cent to $29.57 billion in March, 2014 as compared to $30.54 billion recorded in the same month of last year.  
Imports dropped by 2.11 per cent to $40.08 billion in March, leaving the monthly trade gap at $10.50 billion. For fiscal 2013-14, exports stood at $312.35 billion, up 3.98 per cent from the previous year's $300.40 billion.  
Total value of imports for the fiscal 2013-14 was $450.94 billion, 8.11 per cent lower from $490.73 billion recorded in the previous year.  
Trade deficit for the fiscal ended March 31, 2014 was substantially lower than the previous fiscal. Trade deficit narrowed to $138.59 billion in 2013-14 from $190.33 billion recorded in 2012-13.  
No doubt, India had missed reaching its export target of $325 billion for fiscal 2013-14 as currently it stands at $312 billion. Recent topsy-turvy in the rupee led to erosion in the competitiveness of the Indian exporters.  
It is good to note that the Hong Kong Trade Development Council (HKTDC), which is working for promoting trade with Hong Kong as a hub, plans to open more offices in India to boost trading opportunities. India could harness Hong Kong as a hub to export its products to Asean countries and China.
Finally, India should embrace a path towards modern economy to reverse its slow growth and restore the economic miracle the country has achieved. The US-based information technology and innovation foundation (ITIF) said that India should aim to spur across-the-board productivity growth in all sectors based on competitive markets, liberalised trade and robust innovation policies to reverse its slow growth, spur global competitiveness, and restore the Indian economic miracle.
Hopefully, global growth is expected to improve and the expansion in global output is likely to be led by developed economies, particularly the USA - India can reasonably hope that growth in export will pick up this year on the back of such recovery.
Whatever is, the fact remains that while the recent global economic downturn has played a part, a major factor in India's economic slowdown has been the loss of momentum for continued economic and trade liberalising reforms.
DR  B K  Mukhopadhyay, a Management Economist, is attached to West Bengal State University.
 m.bibhas@gmail.com