OVER the past two years Indian officials have excelled at predicting with magnificent conviction that an economic recovery would happen in the next quarter, always the next quarter. As things steadily got worse, culminating in a currency scare that lasted from June through August, their credibility slumped in tandem with India’s growth rates. But now there is something to cheer about. Three pieces of data over the past week suggest that economic growth has bottomed out at the 4-5% range and that a precarious balance-of-payments position is improving sharply. Optimists will argue that the stage is set for a sharp recovery in Asia’s third-biggest economy—if the country elects a more coherent government, in elections due by May.

First, consider the data. GDP growth rose to 4.8% in the three months to September, up from 4.4% in the preceding quarter (the lowest rate for a decade). HSBC’s index of animal spirits among purchasing managers in the manufacturing sector showed a mild pick-up in activity during November. And the current-account deficit showed a huge improvement in the quarter to September, falling to 1.2% of GDP from 4.9% in the preceding quarter and a terrifying all-time high of 6.7% in the last three months of 2012.

The GDP figures are more impressive than they seem. For much of the quarter the financial system was facing a crunch, thanks to the currency panic. At the time some forecasters worried that growth might dip below 4%. Amazingly the single largest contributor to GDP growth was “finance, insurance, real estate and business services”—exactly the industries you would expect to be hurt by a financial panic. Measured at market prices (a slightly different definition of output from the one India uses, which the IMF and much of the world prefers) the recovery looks sharper. GDP picked up to 5.6% from 2.4% in the preceding quarter. On this measure India is growing at its fastest pace in almost two years.
The improvement in the current account deficit is partly artificial. About three-quarters of the fall is due to a slump in gold imports. The government has put in place tight restrictions to discourage Indians from buying the shiny stuff. These may not be sustainable—the most recent trade figures for October show a slight deterioration, and smuggling is rising. Still, exports are also rising which suggests that India might be able to earn its way to a better balance-of-payments position. And emergency wheezes to attract hard currency have worked. A scheme to subsidise banks’ gathering of foreign currency deposits and foreign debt has raised $32 billion—enough to finance much of the current account deficit this year. The rupee’s rout over the summer was prompted by the prospect of America’s Federal Reserve “tapering” its purchases of bonds and thus an end to the easy money that has sloshed into emerging markets for years. If the Fed tapers early next year, India now looks better positioned to weather the storm than it had over the summer.
Not everything is heading in the right direction. Inflation is high and rising. Interest rates may have to go up too. And the government’s finances continue to deteriorate. The finance ministry is famed for its ability to manipulate borrowing figures by, for example, delaying payments so that they appear in the next financial year. It will have to torture the figures to death if it is to hit its target: a 4.8% budget deficit for the central government for the year to March 2014. Still, on balance India’s economic health is improving—and according to the data, not just the hunches of its ever-optimistic officials.