The Indian economy in 2012 has gone through stress in the form of dwindling investor confidence and uncertain markets on account of the various concerns which have been plaguing the nation for some time now. These issues can broadly be classified as high inflation, high twin deficits (Fiscal Deficit and Current Account deficit), policy paralysis and perception impacting events like 2G scam, Coalgate scam, etc.
Looking ahead, I firmly believe that India still has a good fundamental story as its dependence on the external world for growth is relatively lower when compared with other emerging nations. I wish and hope that the coming year (2013) augurs well for the nation as I put my wishlist. Lower inflation and inflationary expectations: Inflation has taken its toll on the Indian economy both directly and indirectly. On one hand it has increased household expenditure, on the other the lower disposable income has eaten into the savings of the common man. This has resulted in lower deposit creation in the banking system, which is vital for emerging country like India. I wish that coming year brings with it lower inflation, which would help in increasing financial savings rate and maintaining a moderate and stable price regime. Consolidated fiscal condition with lower fiscal deficit: High government expenditure to boost economy over last 3-4 years has resulted in a huge fiscal burden, which is now becoming a threat to economic stability. I wish that the government takes hard decisions like controlling subsidies, reducing wasteful expenditure, increasing revenues by ensuring greater compliance to taxes and sticking to long term Fiscal consolidation plan.
Lower current account deficit: Huge current account deficit in last couple of years, primarily on account of huge Oil imports and Gold imports has resulted in a weak currency, thereby reducing competitiveness, increased imported inflation, and making us more vulnerable to external shocks. I hope that our current a/c deficit reduces soon and government takes the right decisions to boost our exports, control oil and gold imports, thereby stabilising our currency.
Faster policy reforms and speedy implementation: Govt has already shown intent towards policy reforms by initiating a few policy changes. I wish that the same continues going forward and government not only takes faster decisions on critical changes required, but also implements the decisions thereby reviving investor confidence.
Transparent rules and certainty on future actions: Few alleged scams and issues like GAAR have maligned India’s image and have made investor wary. I hope that government takes a relook at some of the required areas, put in place a transparent mechanism, and removes uncertainty on future outcome to bring confidence back.
The wish list can go on, but for now I believe that above mentioned can provide the needed thrust to kick start our economy.
(The author is Head of Investments, Canara Robeco Mutual Fund. The views are personal)
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