Steven Hansen thinks the Indian economy looks strong.  The election of Narendra Modi as Prime Minister in May 2014 has been what many believe a water shed election sweeping in a majority government for the first time since 1984. Narrow cast and religion voting patterns were set aside and the electorate opted to vote for promise of clean and effective governance.  Modi is known for achieving results in his past elected positions – but not known as a great master planner.

The appointment of Indian-American economist Arvind Panagariya to the key post in economic planning for India.  Panagariya is a heavyweight on the stage of international economists.

Modi administration’s performance since May 2014 has been mixed one. Politically reigning in what is called the “Saffron Family” has been tough who have at times worked at odds with Modi administration. Economically the country has stabilized. Inflation is down and India’s manufacturing PMI rose to 54.5 in December, 2014, while in the corresponding period a year ago it stood at 50.7, just above the crucial 50 mark which separates growth from contraction. Many in industry blame the super Hawkish Raghuram Rajan for throttling industrial growth.  Modi has put together a heavy weight team which believes free market economy tempered by social spending to create inclusive growth for the third of the world’s most extremely poor who live in India.

From May 2014 when Modi got elected , the Super Hawk Raghuram Rajan has been running circles round Modi’s administration by keeping tight leash on money.  Many believe that the Central Bank single handedly has almost frozen industry by crying wolf on inflation, completely ignoring the generally deflationary trend worldwide.  In an ironic twist he has been now circled by the heavyweight Pangariya and his crack team who may have better handle on what needs to be done for the Indian Economy. Hopefully we should see the Indian Economy being unfrozen.

Here are the positives:

• Reform in Indian banking sector
• Government will not find larger fiscal deficit to quicken the infrastructure spending
• A Hawkish Central Bank led by Raghuram Rajan will have to “bow” to equally heavy weights led by Panariya who are not hawkis
• Taxation Reforms which will be friendly to both domestic and international business
• Manufacturing sector should get a boost

Downside scenarios are sabotaging Modi’s administration good work by The Saffron (Hindu zealots) and the continuous tension on Indo-Pakistan border. We do not make much about the Indo-China rivalry and have on the contrary argued that both will work together.