Is The Tide Turning?

Good economic news is finally trickling in. As the Narendra Modi government completes two years in office on May 26, India has overtaken the United States and China as the world's largest recipient of foreign direct investment (FDI).

During calendar 2015, India attracted $63 billion in FDI. The US drew $59.6 billion in the same period. China received $56.6 billion.

This is a significant achievement, predictably downplayed by the mainstream media. Reason? Gujarat has emerged as the leading FDI destination among Indian states. It attracted $12.40 billion in 2015, ahead of Maharashtra's $8.30 billion.

More good news: The trade deficit for 2015-16 has shrunk to $118 billion, down from $138 billion in 2014-15, despite a sharp fall in exports.

Low oil prices have obviously helped. So have declining gold imports. Exports are down year-on-year by over 17 per cent but then the exports of virtually every major country plummeted in 2015-16. China reversed its own steep export downslide only in March this year.

The coal sector is the harbinger of more good tidings. As The Times of India reported, "India's all-time high coal production of 637 million tonnes hides another feat - acquisition of a staggering 10,000 hectares of land in the past two years for coal projects even as private enterprises complained about hurdles posed by the new land law. Critical factors in the turnaround story that transformed the coal scenario from scarcity to surplus are Coal India's effort to rev-up land acquisition manifold and the public sector company's success in getting stage-II forest clearance for over 3,500 hectares. As mines go into production, average fuel availability at the thermal power generation plants is 27 days, a far cry from the 'critical' and 'super critical' supply scenarios that were the norm in the past. Last year, production grew around 9% on the back of a 6.7% rise in 2014-15 as Coal India and private players mined more coal than ever before."

The good news doesn't end there. The index of industrial production rose 2 per cent in February 2016 after being in negative territory for three months (from November 2015 to January 2016).

Inflation remains under control and GDP growth in 2016-17 is likely to exceed the target of 7.5 per cent on the back of a good monsoon which will spur rural consumer spending. That's good news for FMCG companies like Hindustan Unilever, Dabur, Marico and ITC.

Even the usually grim RBI governor Raghuram Rajan said recently at the Singapore Symposium that India was poised for a "leap in production". He added: "I suspect we are on the verge of a revolution here. I do believe that we should allow our enterprises to find their way. We have almost everything for the leap in production; whether it is manufacturing or services, we can take the step forward."

According to the International Monetary Fund (IMF), the world economy is estimated to grow at 3.5 per cent in 2017. India will again top the charts with 7.5 per cent GDP growth according to the IMF. It estimates Chinese GDP growth at 6.2 per cent in 2017, US growth at 2.5 per cent, the Euro area at 1.5 per cent and Japan at (-) 0.1 per cent.

The last thing this should do is create complacency in the Modi government. Much more needs to be done before we can say the tide has turned and the broken economy the NDA government inherited from the UPA regime has been fixed.