After the landslide victory for Mr Modi some pundits argue that he should take on bold structural reforms. We do not agree. Rather than taking on risky and time-consuming reforms, Mr Modi first needs to help India regain growth momentum through expansive fiscal policy and easier monetary policy. The Indian economy has suffered two successive years of subdued growth. On the very first day of the government taking over, growth data showed a 5-year low of 6.8% for FY2019. The unemployment data confirmed severe joblessness in the economy. While we don’t deny the importance of structural reforms in areas such as land and labor laws, Mr Modi should first focus on reviving the economy so that it can swallow painful reforms later.

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As the election approaches its finale, the Twitter war between BJP and Congress is also dwindling down. In this report, we analyzed the tweet mentions of top leaders within Congress and BJP in order to understand the role of leaders other than Mr Modi or Mr Rahul in the political campaign. BJP president Amit Shah was surprisingly visible in the BJP tweets, with his name appearing in 30% of the total tweets. Mrs Priyanka Gandhi was also fairly visible, despite her late entrance to the politics.

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The power sector in India has been failing to meet the country’s demand for electricity. Despite the recent claims of having become a power surplus nation, most Indians continue to face power cuts. Thanks to entries by private sector operators in recent years, generation capacity is no longer a core problem. However, the supply is still hindered by the constraints in transmission and distribution system. Nearly, 20% of power generated is still lost while being distributed, but power distributors are unable or unwilling to make adequate investment to their facilities due to their poor financial performance. While the government tried to address the problem by launching UDAY, a policy package enabling state governments to help power distributors, but it has so far failed to turn around the power sector. In our assessment, it will still be some time before the people in India can enjoy uninterrupted power.

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Social media platforms such as Facebook, Twitter, and WhatsApp increasingly represent a higher volume of national conversations, including politics. We extracted tweets from Twitter API since February 14, 2019, focusing on those mentioning BJP or Congress. With less than a month left before the first vote for 2019 general elections, we see that the Congress party has become much more competitive on Twitter compared with what they managed in 2014. When Rahul Gandhi held rallies on February 24 and on March 13, the number of tweets mentioning Congress saw significant spikes. The air strikes at Balakot in the last week of February did help BJP in getting more tweets, but only temporarily. Unlike in 2014, BJP is facing a much tougher opponent in the SNS space. India Macro Advisors will be conducting weekly analysis on the Twitter battle between BJP and Congress in the coming weeks.

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The general election is almost upon us. Could the BJP-led National Democratic Alliance (NDA) pull together the 272 seats it needs to win a second term? If NDA falls short of a majority, can the opposition manage to get a workable majority? Opinion polls and surveys such as India-Today's Mood of the Nation survey (Jan'19) indicate a hung parliament, with neither NDA nor United Progressive Alliance (UPA) gaining a majority. The possibility of a hung parliament seem to terrify the stock market, and the general opinions tend to favour a majority government as against coalitions. However, a coalition government or even a minority-led one is not necessarily a doomed scenario for India. For example, India witnessed the biggest economic reforms from 1991 when a minority government was in power. We take a closer look into a few different scenarios that could emerge as an outcome of the elections.

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Over the past few decades, fertility rate (births per woman) in India has fallen from over 5 to just above 2. As child mortality rate fell thanks to better medical care, Indian families no longer need to have numerous children to ensure the succession of the family. A fall in the fertility rate is said to bring a bundle of significant economic benefits, often known as the demographic dividend. Indeed, empirical evidence suggests that India has greatly benefited from the dividend.

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"Make in India" is Modi government's flagship project initiated in 2014 to boost manufacturing. The project aims to increase manufacturing's share in the economy from 15% in 2014 to 25% by 2022 and create 100 million jobs. Unfortunately, it is not working as planned. The share has remained stagnant at roughly 15% in the last four years. The employment is growing, but at a far less pace and mostly in low-quality jobs. In the aftermath of the demonetization, the growth rate of manufacturing has halved between 2016 and 2017.

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As with any emerging countries, employment in India has been moving from agriculture to other industries in the past few decades. Between 1981 to 2016, agriculture sector's share in employment has fallen from 70% to 42%. In the case of India though, the role of manufacturing industry was limited. Its employment share barely rose from 10% in 1981 to 12% in 2016. In India, it was the service sector, and more recently the construction sector that absorbed the expanding labour force in India. The employment share of the service sector rose from 17% to 31% between 1981 and 2016, and that of construction rose from 2% to 14% in the same period. For the latter industry, the rural construction boom in 2000-12 added quite a few jobs. While more jobs are certainly better, the productivity growth in the construction sector has unfortunately been falling in the 10 years to 2015 and the per person value added is falling close to that of the agriculture sector. While the productivity growth in the service sector is decent, its employment growth has been slowing in recent years. We believe that the prevalence of low value adding jobs and a slower growth in high-productivity jobs has started to hurt the overall growth the economy. India needs to produce high productivity employment along with high-skilled labour to reap the chances of a favourable demographic dividend.

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India hass become one of the major foreign domestic investment (FDI) destinations. Between 2000-2016, FDI inflows saw a 12-fold increase. As a recipient country of FDI inflows, India has climbed from 35th position in 2000 to 9th position in 2016. The FDI policy has gone through dramatic deregulation since 2000 and caps on foreign ownership have been lifted or abolished for many industries. Indeed, we see that FDI inflows to India have become more diversified over the years, with industries such as trading, automobiles, pharmaceuticals, chemicals and food-processing becoming major recipient industries of FDI. Considerable challenges remain for India to become truly open to foreign capital. The tax landscape in India remains complex with one of the highest corporate tax rate among major countries. Poor infrastructure and government red-tape remain as serious obstacles. However, as shown in the improvements in the World Bank's Ease of Doing Business ranking, India seems to be making headways in overcoming these challenges. A continued increase in FDI is likely to be a source of further growth for India.

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During Apr'17-Jan'18, the central government's fiscal deficit reached 113.7% of the revised budget estimates (BE) (2017-18) amounting to Rs. 6.76 trillion. This level of deficit is equivalent to 4% of GDP, higher than the erstwhile target of 3.2% of GDP and even the revised target of 3.5% of GDP (As per Union Budget 2018-19). Given the above developments, we feel adherence to the fiscal deficit target for this year and next seems a mamoth task.

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2017 was a good year for the Indian rupee, as it strengthened against the dollar by 5.6%. The appreciation was on the back of an increase in capital inflows, supported by major structural reforms such as the historic Goods and Services Tax (GST). Further, the higher real interest rates in the economy attracted capital and helped the rupee strengthen. The forex reserves touched a record high of more than USD 400 billion by the end of the year 2017. In the first half of 2018, we see a few important risks to the rupee. With oil prices on the rise, the current account deficit (CAD) would widen and may weaken the rupee. Further, rising domestic inflation, risks of fiscal slippage and expected rate hikes in the US are likely to add to the weakening of the rupee. However, toward the end of 2018, we expect to see these risks to be mitigated to some extent by a recovery in the domestic growth, a comfortable cushion of forex reserves, improvement in the export performance and benefits due to the stabilization of GST regime in 2018.

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Digital transactions in India went through a sudden jump due to the demonetization initiative which was undertaken by the government in November 2016. The notes in circulation to GDP ratio fell from 11.9% in October 2016 to 10.4% in October 2017. The use of m-wallet, a pre-paid payment method has more than doubled. The use of debit-card and credit card at the point of sales(PoS) have both gone through significant increases in the last one year. However, India still remains a cash-intensive economy. Even after the demonetization initiative, cash withdrawal from ATM far outweighs the use of debit and credit card at point of sales(PoS). The note in circulation to GDP ratio is also creeping up. It has risen from 9.8% to 10.4% in the past 3 months. It will be such a disappointment if the ratio returns to the pre-demonetization level. Unless India makes a continued effort on its digitization, the progress it made at a huge cost of demonetization could be reversed.

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The latest torrent of macroeconomic data in Asia’s third largest economy has strengthened the notion of an interest rate cut from the Central Bank in the upcoming August meeting. The last two MPC (Monetary policy committee) meetings’ have not been able to provide a strong rationale for not easing in a less- adverse global environment and a seemingly benign inflation trajectory. In the meantime, the MPC, however, pared their inflation forecasts down for both halves of the current fiscal year to buy some more time.

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Recently, the Government of India put a nation-wide ban on slaughter of cattle. The official notification dated 23rd May 2017, lays out new rules called “Prevention of Cruelty to Animals (Regulation of Livestock Markets) Rules 2017, under the Prevention of Cruelty to Animals Act, 1960. The official document stated “No person can sell the cattle for slaughter and it can be bought only for agricultural and dairy purposes”. As per the new rules, the word “cattle” means a bovine animal including bulls, bullocks, cows, buffaloes, heifers, calves as well as camels.

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