Economic boom yet to take off in India

During India's 2014 elections, Prime Minister Narendra Modi promised to boost the economy if he was elected. Over a year has passed since his landslide win, and recent figures show high GDP (gross domestic product) growth of seven per cent year on year in Q2.
But there are serious concerns that the growth is overstated due to the new official methodology for calculating the country's gross domestic product. Several changes in the calculation were introduced during this period, such as using consumer prices instead of production costs, the introduction of surveys to account for non-listed companies and the change of the base year.
As a result, India became the fastest-growing economy "on paper" overnight, which generated a great deal of controversy. The new GDP growth is structurally higher than the old version by 1.5 percentage points on average for the two years in which the two datasets are available. However, the new series has not registered any significant improvement last year. There seems to be no economic miracle for the time being. Other well-understood economic indicators need to be analysed to assess India's economic performance. Car sales, for instance, seem to have recovered from their weakness, from an average growth of 2.8 per cent YoY in the second half of last year to 7.4 per cent YoY in the first six months of 2015.
Industrial output growth has also improved, from 1.5 per cent YoY to 3.4 per cent YoY on average in the same period. Manufacturing and services PMI have remained above the no-change threshold, with readings of 52.3 and 51.8 in August, suggesting a moderate expansion.
Another good measure to assess the evolution of the Indian economy is tax revenue, which should be correlated with the targeted sectors. Corporate tax revenue growth fell sharply in the first six months of 2015 (-6 per cent YoY on average) while income tax return growth remained broadly steady, at 3.5 per cent YoY.
However, revenue coming from service tax accelerated, from an average growth of 8.5 per cent YoY in the last six months of 2014, to 11.1 per cent in the first half of this year.
Overall, economic indicators are mixed and do not suggest a significant pick-up in the Indian economy.

Important economic reforms wait to be approved more than a year after Modi's election. Two important legislative changes are the land acquisition bill and the implementation of the goods and services tax (GST). The first reform is key in order to release land for industrial and infrastructure projects. Currently, this reform is under amendment as it has been labelled anti-poor and anti-farmer by the main opposition party. The implementation of the GST is also crucial. It aims at replacing all indirect taxes, substantially reducing bureaucracy and helping unify the Indian market. Currently, the government is seeking support from the Congress party to pass the bill, but has recently complained about the absence of "positive signals".
These two reforms have the potential of boosting investment in India, but so far it is highly uncertain whether the government will succeed in implementing them.
While some factors may pose a threat to the economic outlook, current conditions offer great opportunities. The moderation in food inflation allowed for policy rate cuts, which set an appropriate environment to boost investment and consumption. However, a potential pick-up in energy and commodity prices could fuel inflation in India.
The weakness in global growth, led by the deceleration in China, could also represent a disincentive to invest, but the two main export destinations are the US and the European Union, which are experiencing a resilient recovery.
Overall, conditions are right for India, and the government needs to deliver the necessary reforms for economic growth to thrive in the medium term.
The writer is an economist at Asiya Investments Company. Views expressed by him are his own and do not reflect the newspaper's policy.