Column : The macro map for 2013

In this article, we discuss the hopes and risks in the Indian macro landscape of 2013, spanning both economics and politics. Our base case is that the worst is over with expectation of some traction on both investments (via Cabinet Committee on Investment) and fiscal policy (cash transfers, tax reform).

Our base case assumes (1) a relatively benign global environment growing at 2.6%; (2) steps towards reversing the decline in investments; (3) measures on the fiscal—particularly a move towards cash transfers and a gradual implementation of tax reforms; (4) stable/lower commodity prices; (5) continuation of measures to attract capital flows; and (6) no early elections.

However, there are risks as well as opportunities. The four key risks are global, political, housing and ratings, while the four key opportunities are growth, inflation, fiscal and savings & investments.

Four key risks:

Global dynamics: Following a 2.5% growth in 2012, Citi’s base case is for global growth of 2.6% in 2013E and 3.1% in 2014E. Evolving dynamics in 2013 include the US fiscal cliff, euro area uncertainty, Middle East geopolitics, and also China issues—all of which will play their role as India’s dependence on global capital and risk appetite remains high.

Politics: Reigniting interest with the first phase of reforms in September (fuel prices, FDI and divestments), the government has fuelled hopes that this is not a false dawn. Despite the political cost, the government has stepped up

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