Corporate earnings to recover in 2013
Domestic growth rates are seen improving following recent fiscal policy action. The slew of measures include moves to cut the fiscal deficit, curtail government spending, restructure state electricity boards and liberalise certain foreign investment limits. As such, the measures should help alleviate investor concerns, stabilise markets and help economic growth rates.
In addition to the reforms already undertaken, we would like to see some other measures to help put the economy on a more sustainable growth path. In order to speed the growth of the infrastructure sector, the government needs to more closely look at the issue of the domestic allocation of coal and land. Quicker approval mechanisms for large projects (i.e. through a single window application process) are needed. In addition, the government needs to push key reforms in the areas of goods and services taxes (GST), the direct taxes code and push through the land acquisition bill and increase clarity on the tax treatment of foreign investors. The implementation of direct cash subsidy transfers on a fully-fledged basis will also be important to address fiscal deficit meaningfully. A reform of GST alone, for example, is expected to add 150-200 bps to GDP growth.
The non-agricultural components in the 2012 third quarter GDP figures, as well as data from eight core industries over the past few months and the recent manufacturing PMI indicate economic growth has bottomed out in the current quarter. However, we expect GDP growth to remain below 6%
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