On the face of it, 2015 has been a decent year for the Indian economy. Admittedly, activity indicators are pointing to a slow and bumpy recovery, but conditions have undoubtedly improved following three years of tepid economic growth. Meanwhile, inflation has remained anchored, allowing the RBI to lower interest rates by 125bp this year. In addition, India’s external position has continued to strengthen, leaving the economy well-placed to withstand the onset of Fed tightening.
But while the near-term picture looks relatively good, progress on the government’s reform agenda has been disappointingly slow over the past year. In particular, there appears to have been very little appetite among policymakers for much-needed labour market reform. Meanwhile, the passage of the Good and Services Tax and amendments to land acquisition laws continue to be delayed in parliament. Looking ahead, with a number of important state elections due to take place in the next six months, prospects for wide-ranging reform in the first half of 2016 look slim too.
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