Rural demand key to spur economy

As we exchange greetings for the New Year, it is pertinent to ponder about  the outlook for the Indian economy in 2016 in the backdrop of a rather challenging 2015. Pointers from the RBI’s Financial Stability Report and the Mid-Year Review authored by Chief Economic Adviser Arvind Subramanian seem to be right on the spot. Both these key documents see the state of economy as ‘glass half-full’ and not as ‘glass half-empty’. At this point of time when the world economy is sending bleak signals, the ‘glass half-full’ view of the Indian economy should give us confidence about the year ahead. In her comments in German newspaper Handelsblatt, IMF Managing Director Christine Lagarde stated the rising US interest rates and slowdown in China would lead to “disappointing” and “uneven” global growth.

Courtesy crude oil being sold at a distress price of $33 per barrel (Indian basket), the country’s current account situation looks quite stable contributing to a significant improvement in the macro fundamentals. But then, domestic demand is showing pick up in patches while private investment is constrained by high corporate debt burden which has become a big headache for the banking sector. The rural demand too is subdued by failure of monsoon for two consecutive years. If we are still growing by 7-7.5 per cent, the credit goes to the crash in crude oil prices, an event very intelligently used by the Finance Ministry to keep the government finances in a healthy state of affairs. Though exporters remain in pain, the trade deficit stays well in check because of a faster drop in import bill.

Looking forward, unlike in 2015, the stock market may perform  better but those sounding too bullish and projecting 15-20 per cent gains are the die-hard bulls who talk only about Maruti shareholders making a killing and not Vedanta leaving its shareholders in stress, illustratively. Even if it is granted that India would outperform other emerging markets and would remain the fastest growing eco-nomy in the world, the global investment is expected to return in greater measure to the US and other advanced economies. Back home, there is need for a revival of the rural demand which remains so crucial to the consumer demand in a host of sectors like FMCG and two-wheelers. The government is also expected to contribute more to the rural economy in the coming Budget as it is working hard to bring back pace to infrastructure like roads and highways.