Preparing for the Upcoming Boom


What ?

Do I think that an economic boom is coming ? And that too, in India, which is currently facing an economic deceleration ?

Yes.

I do think that good times are around the corner.

Does not appear to be so. To anyone. To the World Bank. To the IMF. To the economic analysts. Or, even to stock markets.

But I can (as well as anyone) see some early signs of an economic turnaround on the verge of happening in the Indian economy.

All of us know that government policy-making is a key determinant of “feelings generation” in business/industry mindset. What I mean by that ? Industry captains and business executives have to “sense” an improvement in policy directions that would benefit them in the short to medium term. And that sense would then generate positive feelings about the turnaround of the economic situation. And that would then in turn, lead to some early investment decisions. The induction of Mr P Chidambaram as the Finance Minister and his reversal of the retro-active / regressive tax policies introduced by his predecessor (currently the President of India) are sending strongly positive messages to the business and investment communities world-wide.

The other key determinant is domestic consumers’ consumption patterns. It is apparent to everyone that the real estate market is holding up pretty well in key markets in the country. Car purchases are going up. Two-wheeler purchases are holding up. People are still buying jewellery. When airlines announce a big drop in seat prices on a fire-sale, people pick up almost all the seats on offer. There are big crowds in malls. People are still going to movies and restaurants – difficult to get a movie ticket, except when you try to book online. Though fuel prices have largely been deregulated, people are no longer shouting at the government for doing so in an aggressive fashion.

And, what about the inherent demand for almost everything in India ? There is a huge unmet demand, so industry will continue to thrive once certain restrictive policies are pushed out.

Interest rates ? These are critical for CAPEX investment by industry, and the current trend of inflation (dropping to some 6.2% at the wholesale level) is a very positive indication to the RBI (Reserve Bank of India) to tend towards rate reductions in March timeframe.

All of the above are indicating an economic recovery for India. While India is struggling on the exports front due to the difficult economic situation prevailing in the U.S. and Europe, the domestic economy is so huge for India that it never was dependent on the trade to drive its economy forward. While trade is becoming an important component of India’s economic strategy, it is nevertheless in the second spot for India.

So, there we go. One of the largest domestic economies in the world, having almost an insatiable demand for all manufactured goods, is now turning the ship towards good times. In the next nine months, I won’t be surprised if India reaches an annualized GDP growth rate of 6.5 to 7.0%, and then move ahead with that momentum towards its old goal of 8.0%.

So, let us not believe the doomsayers. Things are on the upswing, and we will see the positive economic impact soon (towards the end of 2013).

Cheers,

Vijay Srinivasan
23rd Feb 2013
Mumbai

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