Thursday February 8, 2024

India Brief - February 2024

Political & Policy Issues to Watch

The political winds have blown strongly the BJP’s way

Recent political developments and signals emerging from the 2024-25 Interim Union Budget point to a government confident of re-election. The exuberant public response to the Ram Temple inauguration two weeks ago was a shot in the arm for the BJP and the culmination of a 30-year project for the party. Closely following this, JDU Chief, key INDIA bloc member and Bihar Chief Minister Nitish Kumar broke with his alliance partners, re-joining the NDA after a two-year gap. Effectively, this has tilted the balance back in the NDA’s favour in what would have otherwise been a battleground state. Further signs of fraying opposition unity are visible in West Bengal and Punjab, where the main regional parties (the TMC and AAP, respectively) have backed away from seat-sharing talks with the Congress.

The 2024 Interim Budget was an exercise in restraint and a signal of confidence

Meanwhile, FM Nirmala Sitharaman’s final Budget of her administration’s current term was – unexpectedly – a non-event. It avoided fiddling with income-tax rates, unveiled no new populist measures and had no major new sops for industry. Instead, it scaled back on food and fertiliser subsidies; promised further fiscal consolidation (targeting 5.1% of GDP next year, from 5.8% in FY24); and further shifted the balance of government spending towards capex. Maintaining that any new programmes will have to wait until the July (full-year) Budget, it was a welcome exercise in restraint, signalling policy stability and continuity. Driving home the point, PM Modi stated that his third term would be one of ‘big decisions.’

Outlook for the Market

Most of the economic data remains solidly in the green

India’s December-January economic data continues to indicate strong underlying growth momentum. e-Way bill issuances in December (95 million) and GST receipts in January (Rs 1.72 trillion) were at near-record levels, falling just short of the high-water marks established a few months ago. The S&P PMI indices for manufacturing (56.5, up from 54.9 in December) and services (61.8, a 6-month high) saw sharp improvements, led by expectations of strong new-order growth, domestic as well as foreign. IMA’s Q4 FY24 BCPI (Business Confidence and Performance Index) survey also showed a mild pick-up in sentiment over October (62.1, up from 60.6). This was driven by a brightening outlook for the macroeconomy and capex, though partly offset by a dimming view on business performance parameters, including net profit and hiring. Average monthly domestic air-passenger traffic stood at 25.4 million in April-December, up ~17% YoY over the previous year, with December seeing a seasonal jump. Meanwhile, auto sales remain strong, with passenger-car and 2-wheeler registrations growing in the double-digits in January. Foreign trade has also picked up, or at least arrested its deceleration, with non-oil exports and imports growing by 6.2% and 3.4%, respectively, in December.

Inflation remains above target Consumer inflation remains above target, with the headline number coming at 5.7% in December, led by rising food prices (9.5%). However, core inflation, which strips out food and fuel prices, eased to 3.9%. Still, the RBI continues to tread a cautious path and held off again, in its policy review this week, from a rate cut.