The worst is over when it comes to slowing GDP growth

Teary-eyed commentators have already beaten their chests hollow on how the twin curses of Demonetisation and implementation of the Goods & Services Tax have slowed India's economic engine to a mere 5.7 per cent expansion. The Opposition has already gone for the government's jugular for these two apparent self-goals and everyone on Dalal Street is anxious to know whether the ongoing bull market in stock prices will continue or not.

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So, what really happened and what is in store for India's economy, arguably the finest that is there in the global space as of now. Well, some of the brightest are missing the fine print: the economy is in a temporary trough and just paused a bit in a bid to accelerate further. It's the proverbial arrow that is pulled back on the bow before it hits the Bulls Eye.

Often, when all the chips are down, it is Bollywood that saves the day: Therefore, "Picture abhi baaki hai, mere dost"! Such is the resilience of the Indian economy that it will ensure growth returns in leaps and bounds. And there are enough economic indicators that are pointing to it.

True, second quarter GDP slowed to 5.7 per cent as companies cleaned up inventories and refused to manufacture on a large scale as the newly minted GST came into effect on July 1st. Since tax rates were to change largely for the better, sensible manufacturers thought it best to pause their production units for a while. That is the reason why you see manufacturing slowing to just 1.2 per cent growth during April-June versus 5.3 per cent in January-March.

There are two parts of the story: the reasons why GDP expansion slowed to its lowest since October 2014 are heavy interest burden on leading corporates owing to large borrowings; an appreciating rupee that has hit exports and, in turn, lowered capacity utilisation and banks that are under severe stress and are unable to lend due to ballooning non-performing assets.

These factors have more or less stalled investments in capacity expansion. Therefore, growth slowed on the industrial side. A booming agricultural production also ensured that food prices at the farm level fell, thereby, resulting in agricultural growth slowing as well in the months of April to June.

In any case, most economists had more or less written off two-quarters of GDP expansion post-November 2016, when the government introduced demonetisation by sucking out 86 per cent of the currency float.

Now, look at how high-frequency economic indicators, such as monthly sales of motorcycles, personal vehicles, medium and heavy vehicles, diesel and petrol consumption, steel and cement sales/production, coal and rail freight statistics etc have been performing during July and August. They are all trending HIGHER. Similarly, the manufacturing PMI index for August, one of the most important measures to track economic expansion, is at 51.2, indicating that the underlying GDP is alive, well and, in fact, growing.

And how does the economic landscape look from here till March 2018?

* My bet is that GDP will accelerate to an average 7.4 per cent in the next two quarters.
* Companies, stores, malls and mom-and-pop shops will restock goods. The good effects of the ongoing remonetisation are already visible in hotels, construction and transportation sectors.
* Consumption enters a higher trajectory as states implement salary increases recommended by the 7th Pay Commission. Therefore, disposable incomes rise.
* The lag effects of lower interest rates start reflecting on corporate balance sheets, consumption levels and on banks' non-performing assets.
* The government kick starts spending, thanks to higher tax collections and aggressive asset sales in the stock markets.
* The markets head higher as the government implements more reforms, further liberalises FDI and clamps down on black money.
* And finally, a normal monsoon, inflation targeting by the central bank, ongoing digitisation and financial inclusion will go a long way in improving GDP in the medium term.

Great nation-states and sustainable economies are not made or broken in one or two quarters. India's economic trajectory is up despite minor blips. For those of us who have been watching this great nation take massive economic strides in the past three decades, a modest pull back is an opportunity to load up on some serious stocks. And for those who have perennially waged a war on the state, may I say: you shall lose again. No one has won a bet by going short in India. No one will.