Reasons to be optimistic about India’s economy

After its worst single-day rout (in absolute terms) of 1625 sensex points and a sharp rupee depreciation of 82 paise against the dollar, both stocks and currency bounced back on Tuesday, gaining 291 points and 55 paise, respectively.

But even amid the mayhem of Monday, triggered by a slowing Chinese economy and devaluation of the yuan, most economists maintained that India’s growth prospects were brighter than those of other emerging markets. The optimism is supported by the IMF’s projections for 2015.

Here are 10 reasons to be optimistic about the economy:

1. GDP growth estimated to be 8% in 2015-16: India is considered to be a bright spot in global economy.

2. Improving industrial output: Up 3.8% in June compared to 2.5% in May.

3. Healthier government finances: Improved tax collections, led by indirect tax growth of 37.6% during April-July; lower subsidy bill due to falling oil prices; expected savings may be around Rs 1 lakh crore.

4. Inflation – both retail and wholesale – under control: Retail inflation estimated at 3.8% in July; wholesale inflation at -4.1%, the ninth straight month of contraction.

5. Better than expected monsoon rains: Deficit of around 11%, but distribution has been encouraging.

6. Lower trade deficit: Due to a fall in import bill for crude petroleum, gold.

7. Current account deficit: Appears more manageable at 1.3% GDP in 2014-15 compared to 1.7% in 2013-14.

8. Forex reserves: At a record $355 billion.

9. Early signs of increase in investment.

10. Healthy demand: In consumer sectors, uptick in consumption.

But there are pressure points:

1. Sluggish credit growth. Growth in non-food bank credit off-take slowed to 8.4% in June 2015, compared with 13% in June 2014.

2. High bank NPAs estimated at around 5.75% of gross assets.

3. Falling exports. Declined 10.3% in July, eighth straight month of decline.

4. Several companies have stressed balance sheets, particularly infrastructure firms.

5. Low demand in construction sector.

6. Falling rupee may impact FII inflows; slowing Chinese economy and possible rate hike by US Fed add to market fears.