India: Modi faces limited options to reverse India’s slowing growth – 26 Sep 2017

  • Growth in Asia’s third-largest economy has been slowing for the past five quarters, thanks largely to the chaotic roll out of the goods and services tax and a surprise ban on currency notes to pin down tax evaders. That’s sparked talk of stimulus measures to boost expansion from the slowest pace in three years. But his options are limited.
  • Sluggish output means revenue collections haven’t kept pace and any spending boost would only widen one of Asia’s largest budget deficits, stoke inflation and, possibly, prompt a review of India’s investment grade rating.
  • “The revenue uncertainty in 2017 because of GST implementation and likely slippage in non-tax revenue should limit the government’s ability to increase direct spending significantly,” said Credit Suisse economist Deepali Bhargava.
  • Modi’s administration, which took power in 2014 promising to create jobs, is battling a public perception of economic mismanagement after growth fell below 6% in 2Q17. On top of it, foreigners are dumping stocks at the fastest pace in 2017 as weak earnings fail to justify the boom in share prices.
  • Highlighting the need to battle a slowing economy, Modi announced the formation of a five-member panel to advise him on economic issues as he faces a slew of provincial elections in the coming months and a general election in 2019. He also unveiled a USD2.5bn program to ensure electricity for all households, which may help boost the rural economy.

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