The economic experiments that India has taken up in last year or so have been both unprecedent and without a parallel in world history.
While Demonetization cleaned up mess of shell companies and reallocated shelved money back into circulation, the GST is going to be an ongoing improvement for next one year. What is clear that the real benefits of the bold moves will come into picture only by Q3/Q4 of 2018. One might expect the government to force RBI to lower interest rates by end of Q2 to further the industrial activities.
What is worrying is that all this does not fit nicely into a political calendar. General elections are due by Feb-Mar of 2018 and this does not give Modi enough time to capitalize on gains he has worked hard for.
Bloomberg is already predicting that Global liquidity rush may be running out of steam. The recapitalization of Banks, ballooning of stock markets – disconnected from economic slowdown might all ensure that political mileage from the fiscal policy may be delayed enough to hurt instead of helping BJP. With Congress making a mockery of development in Gujarat the loyalty of BJP traditional voters – the traders and the middle class is well into question. Even if Congress loses in the assembly elections of Gujarat, a change in voting patterns on development jokes, may well be chunk in BJP’s that opposition has been waiting for.
This raises a rather serious prospect of Arun Jaitley going for a populist budget form 2018. It’s been three years of rolling back subsidies, increasing taxation rates for end consumers and being in everybody’s bad books. Such a decision can have serious repercussions for the already slowed growth. While GDP to Debt ratio has largely come under control, too many subsidies can ruin the good work that the government has worked so hard for.
In this aspect Bharatmala kind of stimulus projects seem to be one of the saner course to rebound the economic activities well in time – however the key to economic growth is still with RBI. Unless it lowers interest rates now – Modi will have an uphill task for getting re-elected.