Political & Policy Issues to Watch | |
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| The Centre pushed through a rash of bills in the closing days of the Monsoon Session – and it may opt for early elections | A short and bitter Monsoon Session of Parliament – which saw a failed no-confidence motion – ended up being unusually productive. The Centre introduced 25 bills and managed to pass 23, including several long-pending ones. These included the Digital Personal Data Protection Bill, the NCT of Delhi (Amendment) Bill, two mining-related laws and a number of other amendment bills. Significantly, it introduced 3 bills to transform India’s ancient criminal laws and procedures, but these will be referred to a standing committee. The surprise announcement of a 5-day ‘special session’ in mid-September with (as yet) no defined agenda, has fuelled much speculation – either of a major new social welfare scheme being announced or early elections being called. The latter option seems to have acquired greater credibility, particularly with the government setting up a committee to examine the feasibility of PM Modi’s ambitious plan for ‘One Nation, One Election.’ |
Diplomacy to the fore | India’s diplomatic outreach has been the focus of attention in recent weeks, culminating in this week’s G20 summit in Delhi. A meeting between Mr Modi and Chinese President Xi Jinping at last month’s BRICS meet in South Africa again exposed the dissonance in bilateral relations, with India insisting on the centrality of the border issue and China looking to side-step it. Mr Xi’s likely absence from the G20 met, viewed in conjunction with a planned Narendra Modi-Joe Biden meeting on the sidelines, only goes to emphasise the point. |
Outlook for the Market | |
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| Q1 GDP growth was robust, and most signs point to solid growth in Q2 | Though robust at 7.8%, India’s Q1 (Apr-Jun) GDP growth was marginally below street estimates of 8%+. Manufacturing growth stayed below 5% but services and construction grew strongly – 10.3% and 7.9%, respectively – even on a high base (~16% each) from the same time a year ago. Agricultural output rose by a steady 3.5%. The lead indicators for August point to continued buoyancy, with the Manufacturing PMI accelerating to 58.6, from 57.7 in July. Auto sales remain strong, with Maruti Suzuki, India’s biggest carmaker, reporting its highest-ever monthly sales; 2-wheeler registrations rising by ~6%; and commercial vehicle registrations, particularly of medium-weight carriers, picking up steam. Even as GST receipts slipped just below the Rs 1.6 trillion mark in August, e-Way bill issuances picked up. Taken together, these data points suggest that Q2 growth will stay reasonably firm. |
| Growth is likely to slow in the second half of the year | The forward view is cloudy, with inflation again perking up and trade slowing. In July, retail (CPI) inflation touched 7.4% (up from 4.9%), led by a spike in food-price inflation (11.5%, up from 4.6% the previous month). Wholesale (WPI) prices fell by 1.4% YoY, but this compares with a 4.1% drop the previous month. It remains unclear whether the rest of the monsoon will make up for a severe rainfall deficit in August, but at the very least, food prices will take time to normalise, pushing back any possible rate cuts by the RBI and impacting discretionary spending. Meanwhile, exports and imports continue to contract (by 16% and 17% respectively, in July) as global uncertainties weigh down on commerce. |
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