KUWAIT: Emerging markets are going through a rough patch. Brazil is suffering its worst crisis in 80 years, Russia's economy is contracting close to 5 percent compared to the previous year and China continues to decelerate. Only one country in the group seems to be able to generate good news: India. In the third quarter of this year, real GDP growth accelerated from 7.0 percent to 7.4 percent YoY. While exports continued to contribute negatively on growth, the domestic sector remained robust, due to a rebound in investment and private consumption resilience. Private consumption has been growing at an average rate of 6.1 percent annually in the last three years, rising 6.8 percent YoY in the latest quarter. But the best part is the trend in investment, which went up rapidly in the last three quarters: from 2.4 percent YoY in the last quarter of 2014 to 6.8 percent in the three months ending in October this year.

According to the central bank, the reasons behind the good evolution on investment are low oil prices and better business conditions, facilitated by the boost in public capital spending and cheaper credit. Inflation, historically the key constraint for growth, has improved markedly in the last year, mainly because food prices are stabilizing. Inflation has come down from 8 percent to 5 percent since early 2014, and that has made possible for the central bank to cut rates four times, reducing the lending rate by 60 basis points so far. The "twin deficits" - simultaneous deficits in the current account and fiscal balance, that traditionally burden the Indian economy - are also improving. The current account deficit fell in the last two years from about 7 percent to 1 percent of GDP, and the fiscal deficit from 5 percent to 3.4 percent of GDP since the beginning of 2014.

But India's economic outlook is not without risks. First, growth will not be sustained unless crucial reforms to reduce red tape and boost investment are implemented. The government recently eased restrictions for foreign investors, but two critical measures that will be able to simplify bureaucracy and reduce corruption - the goods and services bill - and free land for industry purposes - the land acquisition bill - are currently stuck in the upper house under amendment processes. Government inaction is a central cause of concern. The second risk is the price of oil. Low global oil prices have helped significantly to improve inflation and deficits, as the country is a major net oil importer and the government subsidizes gasoline. If prices were to rise, the room for reforms would disappear amid high inflation, higher interest rates, and growing deficits. However, given the current global supply and demand conditions, we do not expect this risk to materialize.

In summary, low energy prices have freed up government resources and allowed the central bank to keep rates low, which in turn is helping investment. However, India will not realize its true potential unless the government delivers the reforms that were promised.

By Camille Accad and Jordi Rof