Column : Reignite savings-investment cycle
The pieces of India’s macro puzzle are slowly, but unevenly, being put in place. Growth will improve slightly in 2013—not bad given the still-sobering global outlook. Fast-tracking of projects could be incrementally positive for growth at a time when export-dependent Asia will be suffering more than India from the global downshift. However, India’s macro adjustment will be protracted and a 2003-like growth take-off remains wishful thinking. Our forecast of lower commodity prices next year will be positive for inflation and allow for limited monetary easing. It is often ignored that lasting low inflation and qualitative fiscal adjustment are pre-requisites for sustained growth acceleration. We reiterate our non-consensus view that the rupee will weaken next year as India’s inflation differential will remain high.
Talk on India’s macro has been more negative than investors’ positioning. Easy global liquidity and investors’ faith in India’s long-term story ensured that the equity market has been much better off than the weak real economy.
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