Foreign investors have sold $4.5 bn of stocks since June

The flailing Indian economy — repercussions of which have been witnessed for five quarters — is now showing signs of global repercussions. The aftermath has been building for the last six years, since Prime Minister Narendra Modi’s arrival to power, when $45 billion were poured into the stock market looking at the economic potential. Now, the situation circling the drain with the international money managers pulling out at a never-before-seen pace. According to a Bloomberg report, they have sold $4.5 billion of Indian shares since June — the “biggest quarterly exodus since at least 1999”.

At present, car sale and capital investments have nosedived. The unemployment rate is the highest almost 50 years and the banking sector is marred with bad loan ratio. These factors have invited scathing critiques from economists all over the world. For instance, Bloomberg recorded a statement from Salman Ahmed, a London-based chief investment strategist, which pointed at Modi’s “fading euphoria”.

Investors have been claiming that Modi has been slow to act on much needed reforms around labour laws and selling of state-owned companies. However, if the pace continues, growth plans for international firms might take a hit, directly affecting jobs. Furthermore, his decisions of demonetisation and introduction of goods and service tax have been criticised. The recent efforts in escalating the growth are focussed on short-term goals as the US-China trade war weighs on emerging markets globally.

However, this fiscal ammunition is hampered by budget deficits and indebted state-owned companies. This has caused his own advisors to issue cautionary and shift his focus on major reforms.

This, however, has not stopped from loyal supporters to issue generalised statements on how the government is harnessing every bit to promote economic growth. An example of this can be seen in Niti Aagoy CEO Amitabh Kant’s statement on September 18.

“If you look at the last five years, India’s growth on an average was of about 7.5 per cent. The growth story has dipped to five per cent in the first quarter of the fiscal year 2019-20. Both, the RBI and the government are active on this,” Kant said while delivering keynote address on Fostering a Culture of Innovation’ at an All India Management Association event.

Whereas RBI has brought down the repo rate by 110 basis points, the government took a series of measures and gave three economic boosters, he said, adding it will continue to do so.

“The government is active, the fundamentals of Indian economy are intact and we will continue to do whatever it required to take India back to high trajectory growth rate,” Kant said.

This has left room for investors, who want to see certain kinds of change. Their desires include privatisation of more state-run companies, easier hiring and firing of workers, loose restrictions on land purchases and so on. 

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