India’s improvement in the ranking in ease of doing business, may be a confidence booster, but risks from both within and outside the economy continue to add challenge to the growth prospects, warns a report by DBS.
Earlier in the week, India’s ranking in the World Bank’s Ease of doing business rank jumped by 30 notches to 100 in this year’s review. “This jump is an endorsement of the government’s ongoing reform agenda” said Radhika Rao, India economist at Singapore based DBS, in a report.
“ It is a confidence boost for foreign investors who have already invested in India, with foreign direct investment (FDI) reaching a record high in FY17 and strong year to date year to date in FY’18” said the DBS research report. “Since the survey is more focused on reforms introduced rather than its effective execution and/ net improvement on the ground, it might be premature to assume that a high rank will necessarily alter investment or growth prospects”
The report notes that there is a strong sense of optimism in the economy. The markets too have reacted positively. But there are risks that one need to be watchful of. “The mood is buoyant despite lingering distress in the real economy” said the report. After a brisker August-September, activity might hit a soft patch in Q417. PMI-manufacturing for October eased to 50.3 from September’s 51.2. New orders stagnated along with a decline in export order books. Manufacturers continue to deal with post-GST disruption, while exports’ traditional product-mix limits its ability to participate in the worldwide rebound in electronics and machinery exports demand, noted the DBS report.
Various survey gauging the health of the economy like investment, consumer sentiment, and employment conditions surveys offer a mostly disappointing picture, DBS said in the report. The Reserve Bank of India’s (RBI) industrial outlook surveys are modestly higher than the post-demonetisation/GST slump. In contrast, consumers’ current and future expectations extended decline, set into motion in late 2016. The manpower hiring survey signalled that employers remain cautious, despite a small uptick in hiring intentions in September 2017. Manufacturing and financial/ insurance/ real estate sectors improved by the least (see chart, next page), it said.
The factor to watch is global risks. Brent crude prices crossed the US$60/barrel mark this week, up 10% year to date. If this continues, the positive terms of trade from low oil prices will fade, with concomitant pass-through to inflation, current account, and fiscal balances (through indirect tax collections). Besides, the US dollar and rates have edged up on expectations of a December rate hike and likely passage of tax reforms. These risks warrant attention.
Source: economictimes.indiatimes.com