A perennial favorite questions of every stock market investor is - 'Where is the economy headed next?'
The answer is never easy. Some would say that answering the question is not even possible. Many however continue to brave such macroeconomic predictions. Even going to the extent of putting their forecasts in the form of precise numbers.
The International Monetary Fund (IMF) recently put out the results of its own venture to do the above, that too on a global scale.
So, what did it have to say about India's economic future?
First the good. Compared to most of its emerging country peers, India is expected to expand at a faster clip over the next few years. This includes the likes of Russia, Brazil, South Africa and even Indonesia, all of whose economies are expected to continue to face recessionary headwinds.
Further, India finally becomes a $2 trillion economy this year. This takes India to the 10th spot in the list of largest economies in the world. And the story doesn't end there. The IMF estimates that the year 2016 may see India leave behind even Russia and Italy in terms of the size of its economy, and catch up with France by 2019.
As for the bad, India's recovery from the slowdown is expected to be slow and gradual. The weakness in countries across the globe may continue to play spoil sport with India's own recovery.
Among other things, the IMF also foresees a continued struggle for India in terms of its battle with inflation. It estimates that while the Reserve Bank of India (RBI) may manage to get inflation below its near term target of 8% by January 2015, it is poised to struggle to meet its next target of 6% by January 2016. If this does turn out to be the state of things, interest rates can hardly be expected to come down meaningfully.
And now for the ugly. India's fiscal deficit numbers are still many times more than that of other comparable developing economies. For example, even after adjusting for the ups and downs of the economy, Brazil's fiscal deficit numbers seem to be a good 50% lower than that of India's relative to its gross domestic product. Most of its other peers too score better on this front. The state of government finances have been a big worry for India for quite a few years now. Sadly, they continue to hold the country back.
The lower crude prices have been a blessing in disguise for India. But this is just a temporary phenomenon as we all know the tide could turn any moment.
In our view, the long term solution to India's deficit issues would be to prop up exports. While the seeds are being sown to achieve this feat, there's still a long way to go before results are displayed. Till then, the vulnerabilities will remain.