Economic recovery – A retrospective view - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Economic recovery – A retrospective view

May 24, 2000

The finances of the government of India are in a mess. Using the old method of calculation, the fiscal deficit (in FY00) was as big as that recorded earlier in the decade when the country was grappling with a fiscal crisis. In fact, even on a consolidated basis (central and state governments), the deficit is close to the high recorded earlier this decade. However there still seems to be optimism in the air. We recently met with the Deputy Managing Director of one of India’s leading financial services companies to seek his views on this.

The problem for the Indian economy commenced in 1997 with the Southeast Asian crises. Then followed the Pokhran nuclear blasts. These factors coupled with the crash in stock and property prices had an adverse wealth effect on the Indian masses. Therefore, even as Indians on an average were earning more, they were unwilling to spend due to an erosion in the value of their assets. Money shifted from stock markets to banks (savings increased). Overall consumption slumped, pulling down the entire economy.

The turning point was the budget for FY00 (presented in February 1999). The government took two major steps – hiking the tax benefit for investors in housing property from Rs 30,000 to Rs 75,000 and introducing tax incentives for investing in equity mutual funds.

The first of these measures resulted in a tremendous saving for the retail investor, as a tax benefit had the effect of an increase in his post tax income (also contributing to this were the lower tax rates introduced in 1997, which raised level of savings). This among other factors contributed to the rise in demand for housing, which in turn led to a rise in demand for cement and steel among others. This got the wheels of the economy turning again. It could rightly be said that this triggered the economic recovery.

The second measure contributed in no small measure to a change in sentiment on the domestic bourses. This created a wealth effect (this time a positive one) and consumers were once again spending. The recovery was on.

The reasoning was impeccable. The recovery would itself take care of the fiscal situation of the government, as tax collections would rise (if of course the government took measures to control its expenditure).

Equitymaster requests your view! Post a comment on "Economic recovery – A retrospective view". Click here!

  

More Views on News

These Stocks Have Rallied Over 300% In the Last 12 Months. Is the Rally Justified? (Views On News)

Nov 12, 2021

As many as 150 stocks from the BSE 500 index deliver multibagger returns in the past one year.

Ultimate Guide to Hedging Your Portfolio (Fast Profits Daily)

Sep 21, 2021

How can you protect your portfolio in a market crash? Find out in this video.

Ride the Indian Real Estate Revival with this 'Different' Smallcap Stock (Profit Hunter)

Mar 23, 2021

Affordability in the housing segment has never been so good in last one and a half decade. Here's how you could make the most of it...

My Latest Stock Recommendation (Fast Profits Daily)

Oct 9, 2020

How I picked an exciting stock using trends from both the commodity and equity markets.

Data is the New Oil but It's Also the New Sugar. Here's How to Fight it (Profit Hunter)

Jun 1, 2020

Is too much data hurting your quest for market beating returns?

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

MobiKwik IPO Opens for Subscription Soon. Key Things to Know Before Subscribing. (Views On News)

Nov 20, 2021

The Rs 19 bn issue is set to hit the market soon.

5 Indian Companies Embracing Blockchain Technology (Views On News)

Nov 23, 2021

Blockchain adoption in India was slow in the past. Now, the technology is being well received.

More

Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

MARKET STATS