Threats to Indian economy.. - Views on News from Equitymaster

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

  • MyStocks


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

Threats to Indian economy..

May 27, 2005

'Severe drought across the country', 'global economic depression' or 'Left parties stall all reforms', which of these newspaper headlines would scare you the most? Difficult to make a choice, as each of these would take the 'India shining' story for a toss! We had asked our investors as to which of below normal monsoons, global slowdown or sluggish reforms, impact the Indian economy the most. While a majority (41%) considered below normal monsoons to be the doomsayer, 31% considered the global economy to have the prime impact while 28% felt that a slowdown in reforms would bring the India growth story to a staggering halt. While each view is appropriate in a certain respect, the impact of said 'threats' remains varied. Here we have tried to analyse the same.

Below normal monsoons: Although not a significant contributor to India's GDP, agriculture continues to be the source of livelihood to 60% of the Indian population. Even today agriculture is at the mercy of the rain gods. The yawning socio-economic gap between the agricultural producers in different parts of the country handicaps the impact of technological advancements in this field. The small farmers (who are a majority), due to lack of funds and technical facilities (for irrigation) are subject to the vagaries of rainfall, which unfortunately is not always equally distributed.

Monsoon across meteorological subdivisions

It is not just the rural economy that endures the impact of poor monsoon but the same filters into the corporate books also. Corporates (especially FMCG and consumer product manufacturers) who have saturated their product in the metros are now looking at the rural areas for market expansions. A slowdown in agricultural outputs will have a cascading effect on the disposable income of the rural economy and the corporates' targeted markets.

Global slowdown: A US Fed interest rate fluctuation or Chinese economic growth today arouses as much curiosity in India as in the respective countries. However, in the past, when the Indian economy was 'sheltered' against the global impacts, this was not so. A yesteryear comparison of the world GDP growth rate vis-a-vis that of India shows that there was very little correlation between the two. The opening up of the economy has brought in its share of virtues and vices. While it benefited us by way of benign business opportunities, it also exposed India to the vagaries of the international economies. As a result of which, the Indian GDP growth seems to be tracing its broader counterpart for the past couple of years. A global slowdown, therefore, can have a shoddier impact today than it did before.

Sluggish reforms: Reforms are determined by the necessities of business dynamics in the domestic and international markets. The need to make the domestic companies globally competitive drives the reforms. Needless to say however, that their execution depends upon the willingness of the companies and their governing bodies (which includes the government, sectoral bodies, central bank etc). Sluggishness in such reforms stagnates the growth prospects of the companies and sectors.

Where is India heading?
The Indian economy has been historically paranoid about the monsoons. Despite the maturity of the economy from a primarily agriculture based one to a service oriented one, a disappointment on the projected rainfall is bound to send the economy into a tailspin. Although the Met continues to be bullish on the June clouds, the accuracy of their predictions has left much to be desired in the past. Global slowdown looks unlikely in the foreseeable future with the emerging economies (which includes India), holding promise. Finally, thanks to the economy's coming of age, the ruling political party in the country (be it NDA or UPA) is bound to be a 'reformist', as the clock now cannot turn back. So all said, while the long term prospects of the Indian economy continues to be enthusing, certain negative shocks (like poor monsoons) may prove to be bumpers on the way.

Equitymaster requests your view! Post a comment on "Threats to Indian economy..". Click here!


More Views on News

Can the Nifty Fall to 10,200? (Fast Profits Daily)

Sep 24, 2020

The Nifty has reached an important support level today. If it breaks then we could see further downside.

How to Save Money by Exiting Stocks Before They Fall podcast (Views On News)

Sep 24, 2020

A penny saved is a penny earned. It doesn't matter where you enter. All that matter is where you exit. Watch this video to identify an opportune time to exit your investments and book profits.

ICICI Prudential ESG Fund: Aims for Sustainability (Outside View)

Sep 24, 2020

PersonalFN briefly explains the newly launched fund : ICICI Prudential ESG Fund.

What to Do if there is a Second Wave of the Stock Market Crash (Profit Hunter)

Sep 24, 2020

Here's what I think investors should do in this selloff.

IDFC Mutual Fund Starts Campaign 'SIFI'. Should Buy Into the Idea? (Outside View)

Sep 23, 2020

IDFC Mutual Fund is taking the road less travelled and hence started a campaign SIFI (SIP in Fixed Income) to promote the concept of SIP for its debt funds investors.

More Views on News

Most Popular

How the 8-Year Cycle Can Help Identify Multibaggers (Fast Profits Daily)

Sep 11, 2020

This is how you can apply the greed and fear cycle in the market to pick stocks.

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

This Could Be the Best September for Auto Stocks (Profit Hunter)

Sep 11, 2020

Here's why I think this month could be a great for auto stocks.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...


Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms


Sep 24, 2020 (Close)