By Vrishti Beniwal, Anirban Nag and Bibhudatta PradhanIndias economy grew at a faster pace than most major nations in 2018, and this year, its poised to overtake U.K.
to become worlds fifth-biggest.But that journey wont be smooth.
The outcome of a general election due by May is a potential pitfall for a nation already battered by emerging market turmoil and a currency rout last year.
Also, any attempts by government to undermine central banks freedom and raid its surplus capital may spook investors and carry damaging consequences for economy.Here are key themes to watch for in 2019:Global SlowdownNomura Holdings Inc.
estimates global growth will ease to around 2.8 percent in 2019 from 3.2 percent in 2018, led by a slowdown in China, and a moderation in United States and euro-area toward long-term trends.
As cyclical impulses become less favorable, we expect exports, manufacturing and investment cycle to weaken in India, Nomura analysts said.Monetary PolicyAfter raising interest rates twice last year, 2019 may see Reserve Bank of India reverse course by giving up its hawkish monetary policy bias in favor of a neutral stance.
With demand slowing and oil prices easing, inflation is expected to average toward RBIs medium-term target of 4 percent in first quarter of 2019.
The six-member monetary policy committee may even be in a position to lower interest rates in first half of year, according to some analysts.Shaktikanta Das, new central bank governor, is seen as more dovish on monetary policy, saying inflation is benign and supporting growth is part of RBIs focus.
His predecessor, Urjit Patel, who unexpectedly quit last month, took a more cautious approach on price growth.Interest-rate cuts could give a boost to lending and growth before general election.Election RisksWith worlds biggest election around corner, Prime Minister Narendra Modi is under pressure to boost spending, especially to help farmers, to shore up voter support and spur an economy thats starting to slow.
Data for three months through September showed growth eased to 7.1 percent from 8-plus percent pace seen in previous quarter.Spending pressures intensified last month following disappointing results for Modis Bharatiya Janata Party in regional elections, and farm loan waivers announced by opposition Indian National Congress party in three states it won from BJP.The government is said to be studying three options, including a cash handout for farmers, to ease distress for farmers and to shore up popular support ahead of elections.
Its already slashed taxes on some goods and services and announced exemptions on pension withdrawals to appease voters.These are in addition to programs for guaranteed crop prices and healthcare, full impact of which will be known only in budget, due to be delivered on Feb.
1.With government already exceeding its budget deficit targets in October, any additional measures will need to be balanced with possible reductions in spending to meet fiscal goal of 3.3 percent of gross domestic product for year through March.A loss for Modi in general election is a risk in terms of policy continuity, and investors are watching events closely.Sonal Varma, chief India economist at Nomura Holdings Inc.
in Singapore, expects government to be in limbo until a new administration is in place in May, posing a drag on spending growth in first half of 2019.