India Grows 7.9% in Q1 But Questions Remain on Reforms

India has done it again. The country’s economy outpaced all other major markets during the most recent quarter, further cementing its reputation as a bright spot in an otherwise gloomy world economy.

India’s gross domestic product expanded by 7.9% in the quarter ended March 31, a better-than-expected performance that trumps the 6.7% growth posted by China’s slowing economy over the same period.

Yet as Prime Minister Narendra Modi celebrates his second anniversary in office, there is growing unease over India’s prospects. Some have called into question the validity of the country’s GDP statistics, which have diverged from other indicators. Industrial production and investment spending fell at the end of 2015, and exports remain weak.

Some critics argue that economic reality is being disguised by low oil prices, which have slashed India’s huge energy import bill.
“Another set of remarkably strong GDP data will do little to dispel doubts about the quality of the official national accounts numbers,” said Shilan Shah of Capital Economics.

Modi, leader of the Hindu nationalist Bharatiya Janata Party, has generated huge amounts of buzz around India’s economy. As prime minister, he has spent huge amounts of political capital trying to push common sense economic reforms through parliament.

Modi has also packed his schedule with foreign trips, during which he exhorts global companies to “Make in India.”

Yet many promised reforms have failed to materialize. A proposal to establish a nationwide sales tax has languished in a divided parliament, leaving India’s byzantine system of state duties in place.

Another of Modi’s priorities — reducing red tape for small businesses — has scarcely progressed. India ranks 130th in a World Bank index measuring the regulatory burden on small firms, an improvement of just four spots from 2015. The country’s infrastructure remains woefully inadequate, and will take decades to upgrade.

via CNN

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza