Delhi-Mumbai Trip Tales: Fact Finding, Not Hiding…
As part of an investor trip, we met with government, think-tanks and market analysts.
Growth – Muted Expectations…— Most participants/officials we met expect FY14
growth to remain subdued in the 5.5%-6.5% range (Citi 5.7%): slowdown largely a
consequence of "not having anticipated supply side issues" and "institutional/regulatory
deficits", stalling projects. However, it's not all grim; project completions remain high
(see pg 2), and quite a few of the stalled projects were "bad proposals" to start with.
…Getting it Back on Track, A Top Priority – Consensus suggests that (4.5%
3QFY13 GDP) is the bottom, thanks to some policy momentum and easing commodity
prices. However, challenges remain – (1) continued decline in new project intentions
and (2) weakening consumption, and consequently moderating ‘growth potential’
levels; now lower in the 6.25%-7.25% range. There could be some upside ‘delta’ (or a
more modest ‘epsilon’) due to the Cabinet Committee on Investments (CCI). While the
stalled project pipeline stands at ~US$150bn, CCI has reportedly cleared US$20bn.
External: Structural "imports" likely to keep deficits elevated; INR range-bound –
Universal view that (supply-side issues + energy prices/demand (Oil & coal) + gold
imports) = Record Current Account Deficits (CAD). But for policy makers, recent
commodity tailwinds are not leading to CAD complacency, and thus efforts to increase
capital flows (especially debt) are likely to continue. The INR consensus moves up a bit
Rs53-55/US$ from the recent Rs54-56 level (See Europe Trip Tales)
Inflation and Rates: Both Lower in FY14 – There’s consensus that WPI will be lower
(falling commodities & pricing power). And CPI (currently at 10.4%) should also head
lower on account of (1) Winter harvests and monsoon (2) Policy related measures –
food stocks, pricing. And rates should fall to the tune of 50-100bps. (Citi: 50bps)
Fiscal: Consensus on 4.8% target; Reforms some time away – There’s confidence
that the FM will meet the 4.8% fiscal deficit red-line. But there’s disappointment that
"competitive politics" could result in a delay in tax reforms (GST, DTC); that there would
be the incremental cost of the food security bill (0.25%-0.5% of GDP) – albeit the pain
would be offset by a lower fuel subsidy
Politics: Possibility of Early Elections? Scenarios – Experts put the probability of
an early election at 25%-30%; with 4 prominent scenarios; (1) BJP led coalition without
announcing Narendra Modi (NAMO) as the PM candidate (2) Non-Congress non-BJP
coalition with the outside support from Congress (3) BJP coalition with NAMO as its PM
candidate and (4) Congress led government. Two interesting comments were (a) the
next election could be viewed as a contest between "secular" v/s "corruption" rather
than one of leaders and (b) regionalization of Indian politics that may have brought
"instability at the centre" has also led to the growth of the lower classes.
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As part of an investor trip, we met with government, think-tanks and market analysts.
Growth – Muted Expectations…— Most participants/officials we met expect FY14
growth to remain subdued in the 5.5%-6.5% range (Citi 5.7%): slowdown largely a
consequence of "not having anticipated supply side issues" and "institutional/regulatory
deficits", stalling projects. However, it's not all grim; project completions remain high
(see pg 2), and quite a few of the stalled projects were "bad proposals" to start with.
…Getting it Back on Track, A Top Priority – Consensus suggests that (4.5%
3QFY13 GDP) is the bottom, thanks to some policy momentum and easing commodity
prices. However, challenges remain – (1) continued decline in new project intentions
and (2) weakening consumption, and consequently moderating ‘growth potential’
levels; now lower in the 6.25%-7.25% range. There could be some upside ‘delta’ (or a
more modest ‘epsilon’) due to the Cabinet Committee on Investments (CCI). While the
stalled project pipeline stands at ~US$150bn, CCI has reportedly cleared US$20bn.
External: Structural "imports" likely to keep deficits elevated; INR range-bound –
Universal view that (supply-side issues + energy prices/demand (Oil & coal) + gold
imports) = Record Current Account Deficits (CAD). But for policy makers, recent
commodity tailwinds are not leading to CAD complacency, and thus efforts to increase
capital flows (especially debt) are likely to continue. The INR consensus moves up a bit
Rs53-55/US$ from the recent Rs54-56 level (See Europe Trip Tales)
Inflation and Rates: Both Lower in FY14 – There’s consensus that WPI will be lower
(falling commodities & pricing power). And CPI (currently at 10.4%) should also head
lower on account of (1) Winter harvests and monsoon (2) Policy related measures –
food stocks, pricing. And rates should fall to the tune of 50-100bps. (Citi: 50bps)
Fiscal: Consensus on 4.8% target; Reforms some time away – There’s confidence
that the FM will meet the 4.8% fiscal deficit red-line. But there’s disappointment that
"competitive politics" could result in a delay in tax reforms (GST, DTC); that there would
be the incremental cost of the food security bill (0.25%-0.5% of GDP) – albeit the pain
would be offset by a lower fuel subsidy
Politics: Possibility of Early Elections? Scenarios – Experts put the probability of
an early election at 25%-30%; with 4 prominent scenarios; (1) BJP led coalition without
announcing Narendra Modi (NAMO) as the PM candidate (2) Non-Congress non-BJP
coalition with the outside support from Congress (3) BJP coalition with NAMO as its PM
candidate and (4) Congress led government. Two interesting comments were (a) the
next election could be viewed as a contest between "secular" v/s "corruption" rather
than one of leaders and (b) regionalization of Indian politics that may have brought
"instability at the centre" has also led to the growth of the lower classes.
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