India is once again set to emerge as the fastest growing economy in the world. Earlier this month, United Nations put out a report saying that Indian Economy is expected to grow at 7.2% in 2018 and 7.4% in 2019(UN Prediction). The number still falls short of the government’s expectations of 8% but this would be just enough to beat China (to whom it lost the title in early 2017) in the race of the fastest growing economy in the world.
This year started with scepticism about the impacts of demonetisation. Even before the Indian economy could recover from the short term woes of demonetisation, the government rolled out the biggest tax reform (The Goods and Services Tax). The combined short term impact of this economic revolution brought down the growth to 5.7 % which was the lowest in the last 13 quarters. However in the July-September quarter, the economy recovered and the growth resurfaced to 6.3%.
In this article, we will take a look at the highlights of Indian Economy in 2017.
2017 will go down in the history book as a golden year of the Indian economy and will be remembered as a year of economic revolution like 1991. This year started with a reform in the way budget had been presented till date. For the first time, there was a change in the timing of the budget where a general budget merged with the rail budget was presented in the parliament on 1st Feb; 2018.Another major reform was that there was no differentiation in the planned and unplanned expenditure. This was just the start of a plethora of reforms to come including RERA, daily change in petrol and diesel prices, implementation of GST and Insolvency and Bankruptcy Code, recognition of the NPAs and a plan for recapitalization of the NPAs.
1) Implementation of the Goods and Services Tax
On 1 July 2017, a bill came into effect which was stuck in the parliament for over a decade .All the indirect taxes were subsumed into a one single tax known as the GST which delivers great long term to mid-term smoothening of doing business. As far as black money is concerned, nothing goes away completely unless it’s a Utopian world but the structural reform has for sure made it harder to generate black money. This has also acted as a confidence booster for the citizens of this nation who don’t have an iota of doubt about the intentions of government to fight corruption and black money. The tax system was overhauled in November when as many as 178 items were moved from the 28% tax bracket to 18 %(28% to 18% ).The smooth launch of GST even in the states with opposition administration is a big achievement by the government on the front of cooperative federalism. There is plenty of work to be done in 2018 where tedious paperwork, slow internet speed in the hinterland and identification of those bypassing the system is a challenge. Moreover, petroleum is still out of the ambit of GST and its inclusion is a question that has to be answered by the government. GST is in its nascent state and reforms are coming at regular intervals to make it citizen friendly and a catalyst to the economic growth.
2) Real Estate (Development and Regulation) Act, 2017
The provisions of RERA came into effect from 1 May, 2017.The economic growth is not only measured by the macroeconomic numbers but also by the trust of the consumers. No economy can be said to be growing properly with a trust deficit. This act has improved the accountability and transparency by making the commitment of seller forcible. In case there is a breach of the commitment, there is a strict monetary penalty. From a long time, there were complains that real estate transactions were highly in the favour of the developers. What RERA has essentially achieved is the standardization of sale agreement and boosted the confidence of the consumer by removing the existing trust deficit.
3) Amendments to the Insolvency and Bankruptcy Code
One of the other major positives this year was the implementation of the IBC law which was a missed opportunity of the previous government which they could have included in the Corporate Tax reform but they did not, The IBC was enacted to find a time-bound resolution for the firms which were not performing well, either through closure or revival, while protecting the interests of creditors. A successful completion of the resolution process was expected to help in reducing rising bad loans in the banking system. As the year ends, an amendment to IBC bars wilful defaulters and existing promoters from participating in the bidding process to buy stressed assets of the companies undergoing the insolvency proceedings. This will have a great positive long term consequences as far as the economy is concerned.
4) Indian Equity Market on a roll
The stock market seems to have ignored GST and Demonetisation as it set new records this year. This was one of the best years for Mutual Funds which seem to have attained some level of sustainability which was led by domestic retail inflows (unlike other years where it was lead by FIIs). In 2017, mutual funds witnessed equity inflows of Rs 178,878 crore. Combined with equity inflows, their collective assets under management touched a record high of Rs 1.69 lakh crore this year. As many as 153 initial public offers, including SME, hit the Indian stock market this year, raising USD 11.6 billion, according to an EY report. This was a golden year for the IPOs too.
This would benefit the Central government a lot given that several state-owned companies, including General Insurance Corp of India, New India Assurance, Cochin Shipyard, Housing and Urban Development Corp, went public this year. This is a very positive sign for the government to meet its disinvestment target and might keep fiscal deficit under control too. The BSE sensex also surged this year exponentially. Sensex breached the 33000 mark and Nifty breached the record 10000 mark.
5) Low Inflation
Within four years, inflation in the country has come down from 11% to 2.2% which is below even Mexico and Turkey. This was one of the major achievements which was led by stronger currency and weaker domestic demand combined with structural reforms. However, farm loan waivers and increase in the salary of government employees may shoot up the inflation in the first quarter of 2018 but it is expected to remain in the lower band of RBI (2%-3.5%)
6) The Problem of NPAs
One of the major problems this year and of the upcoming year is the rising NPAs.
IBC will help to curb the NPAs in the future. However, as a damage control, the government has chalked out a 2.11 lakh crore recapitalization plan for public sector banks which will get rid of existing NPAs and blocked capital of the banks due to them. The major reason of the NPAs was that the way in which the banks used to lend for infrastructure was not viable. A major challenge for the government will be to check this behaviour of the banks with reforms in the existing structure.
7) Jump in the ranking of Ease OF Doing Business
As far as 2018 is concerned, there are some administrative reforms that are required to grow at a faster rate. Some such reform measures include privatization of state owned companies and bringing down stake in public sector banks. The investor confidence is growing and this provides a platform for the launch of growth next year. If the government could show less populism relatively in the next budget, the economy is set to grow faster than ever before.