May 17, 2005|
Economy: Future shock!
A famous quotation states, "A chain is only as strong as its weakest link." If one were to consider the Indian economy of the present, there are a number of such links that (can) threaten to stall the ongoing economic run-up. Most prominent among these are government policies, monsoons and changes to interest rates. Let's move upon them one at a time.
The progress towards economic reforms, which seemed to have stalled post the formation of a new government at the Centre, is currently going on at decent pace. However, there remains internal bickering within the coalition partners relating to difference in ideologies, like the reservation shown by the government's Left partners on the FDI policy. If the government with its Left partners continues to get involved in solving their respective ideologies, rather than taking stock of the management and administration of the economy, it may slow its reflexes in responding to a given situation. Consequently, growth might suffer.
As per a latest release from the Indian Meteorological Department (IMD), the monsoons this season are likely to be normal. Despite this assurance, concerns loom large on the 'actual' performance of monsoons considering the 'not so correct' predictions made by the IMD in the past. This is because the large proportion of our population (around 60%) depends on the monsoons for its livelihood. And if something goes seriously wrong on the monsoons front, apart from the agriculture sector, the industrial sector would also get a hit owing to reduced demand. This could impact the economic performance in FY06.
Rise in interest rates
With the WPI inflation hovering near the 6% level (as per RBI's website), there remains an uncertainty whether the Reserve Bank of India (RBI) will raise interest rates in order to cool a heating economy, a hint of which was given in the latest monetary policy announcement when the central bank raised the reverse repo rate. Also, while prices of some key commodities (like steel) have receded in the recent past, they still lie at their historically high levels. As such, rising prices on account of rising input costs might also put additional burden on India Inc.'s profitability, thus derailing the government's objective of meeting its revenue targets through corporate and other taxes. This might then slow down the government's initiatives towards infrastructure development and other developmental activities. Also, the fact that the US Federal Reserve has been 'long-time' hinting at increasing the pace of interest rate hikes it might send a cue to the Indian central bank to resort to a similar policy. Thus, if interest rates were to rise, the populace (especially the middle class), which has been at the forefront of consuming by borrowing, might slow down the same. This might dampen economic growth in this fiscal.
So, what's the weakest link?
While we are not trying to be doomsayers, what we have indicated here are the key possible risks to India's growth in the current fiscal, which might consequently have an effect on the way Indian equities perform. While all the three factors mentioned above have implications that could slow the growth of the Indian economy in FY06, we believe that any 'shock' on the monsoons front can have the maximum effect. Also, the fact that it is beyond human control makes the situation even more perilous.
Now, even while the UPA government has initiated its movement on the reforms path through increased initiatives in improving standard of living of the rural poor, proper implementation still remains the key. And if the government fails on the implementation part, it would only be flirting with a sustainable growth of the Indian economy and the development of its masses. After all, flirtation, in its true sense, means - attention without intention!
More Views on News
Jun 10, 2017
Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.
Aug 21, 2017
Most Indians who cannot find jobs, look at becoming self-employed.
Aug 21, 2017
PersonalFN explains the chief factor pushing gold prices up of late.
Aug 21, 2017
One of the hallmarks of successful investing is to look out for companies that have a unique and enduring moat.
Aug 19, 2017
Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.
More Views on News
Aug 10, 2017
Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.
Aug 8, 2017
'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 10, 2017
Bitcoin hits an all-time high, is there more upside left?
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407