MUMBAI (Commodity Online): With global growth environment expected to remain unsupportive over the coming months, the Indian government has to move away from its populist focus and concentrate on structural reforms and measures. Only such an action can instil confidence amongst India's private investors. Delaying structural reforms will push India away from the path of sustainable growth.
5 key data to watch for in 2012
-Inflation: Even though inflation declined to 7.5% in Dec 2011 from its stubborn 9%, the trend is unsustainable and as such, inflation is expected to rise again from May 2012. However, a sharp slowdown in domestic demand will help curtail the same. Movements in the global commodity prices and the Indian Rupee are key to project non-food inflation trajectory.
-Timing and Magnitude of the easing cycle: Given that the domestic slowdown has been more severe than expected, the Reserve Bank of India (RBI) could ease the repo rate by about 100bps in 2012. But as long as inflation remains high, the RBI will be discouraged to engage in such activities, thereby threatening growth and the investment cycle going into FY2013.
-Government effort to boost investment: Private investment has slowed down over the past months due to high interest rates, inflationary pressures, global uncertainty and weak capital markets. Investor confidence in government policies have shaken. The immediate focus of the government should be to consolidate the fiscal deficit and focus on policy reforms. The private corporate capex that was the main driver of the upturn in investment cycle remains weak at 12.1% of GDP in FY11 (vs. the peak of 17.3% of GDP in FY08).
-Fiscal consolidation and expenditure management in budget for FY13: The upcoming union budget for FY13 which is likely to get announced on 16th March 2012 should give guidance on fiscal consolidation effort by the government and how sustainable it is.
-Global capital markets and external vulnerabilities: India is dependent on global capital markets to fund its ever increasing current account deficit. And even though FII inflows over the past months have been encouraging, the uncertainty in the global market means that capital can be puled out any day. Such a sudden reversal in flows can threaten is a BoP stress in the near term.
The Central Statistical Organization (CSO) estimates the Indian economy to grow by 6.9% in FY12.
Source: Macquarie Economics Research
