India and Global Economy

The mood of the global economy is better currently, as compared to the previous years. If the entire euro zone is taken into consideration, the financial market looks stable currently. There is a need for the government to find ways of working in a more coordinated manner, to sought a balance in the fiscal tightness along with the disbursement of investment in the sectors which needs cash currently for improvement.

In regard to the recent announcements made by the government there is definitely a very positive mood but at the same time the expectation of IMF and World bank from the Indian economy is much higher than what is actually achieved as of yet. Globally it is believed that the present India has a much larger potential and it is expected to perform pretty well, so that the entire global economy is helped as it was saved to some extent by India and China. Measures from the government to help implement several policy reforms like deregulation of diesel prices, FDI in retail and aviation, are seen in a positive light.

Perception of India is changing on a global platform as the global economy is looking upto emerging economies like India, to perform better so that the moderate growth of 3% globally can be achieved.

Reasons why we think India can be the Best pick amongst BRIC Nations in 2013

Lets take a look at why India can be the best pick in 2013 and what should be the forward looking policies implemented by the Indian Government in order to attain sustainable growth in days to come.

India needs to move out of defensive sectors such as staples and the IT sector which have benefited from the weak rupee. Undoubtedly the services sector, which currently contributes around 56% to the GDP, has shown tremendous improvement and development but the growth is robust and would not sustain due to fluctuation in the international forex market. Also such growth is not sustained for long term. India is currently an import driven economy and needs to balance its fiscal deficit. The need for the nation at this hour is long financials, engineering, building materials and real estate.

Currently there are a number of layers which leads to bullishness on Indian economy. Indian companies have shown tremendous performance and growth in the year 2012 despite facing tough inflation. Despite of not supportive policy environment and a relatively weak economy, the growth in the Indian companies across many sectors were worth talking. If we talk about other BRIC nations, we find there is no delivery of earnings growth thus depicting the fact that the Indian companies are used to difficult environment.

With an expectation of rise in borrowing by Indian companies abroad, a strong demand for EM fixed income could be seen. This would further lead to fall of money market rates in India.

Current Concerns of the Indian Economy

It is felt that the Indian economy loses its momentum every time a growth of 5.5% – 6.5% is considered good. It is needless to say that the India has huge potential, with rich resources, technological expertise and huge labor force.

i) Demand Supply Chain – Being a demographically rich country, India always has high demand for products. The lack of suitable environment to help create such products to meet the need of the current generation is one of the key challenges for the economy.

ii) Pending Projects – As far as Infrastructure projects are concerned, PPP was proposed to give a boost to the sector but the projects were never complete in time and as a result there was insufficient inflow of revenue.

iii) Implementation of Regulations – For the creation of a proper environment, regulations are important, since they find a balance among many parameters. As far as the rate cut and other monetary policy measures are concerned, RBI needs to come forward to help create a positive environment by easing the measures to some extent.

iv) Interest Rate – Lower interest rate is one of the needs of the hour along with fiscal consolidation, which would help check the rising fiscal deficit.

v) Fiscal Deficit – There is a rising concern over the fiscal deficit which is crossing the safe limit and entering into a danger zone. The fiscal deficit of the September quarter recorded the highest ever deficit in the history of Indian economy.

The Government therefore needs to get its actions right, so that re-kicking the economy back to the higher growth levels of around 9% is not very difficult.