The year 2014 was significant for us in India as it marked the emergence of Narendra Modi as the Prime Minister, whose persona has been taken to be the enigma of hope for an economy that has been stagnant for two years. The theme naturally was one of change, and the song Rock You Like a Hurricane (Scorpions) would best describe the setting, which was what the PM sang. We had the formation of the BRICS Bank at the global level, and sharp tones at financial inclusion (Jan Dhan), patriotism (Make in India) and cleanliness (Swachh Bharat) caught on with all celebrity corporate honchos holding the broom and being clicked on cameras even if it was for a few minutes.
Second, the focus was always to be on RBI and while there was discussion on whether RBI would perforce agree with the government which asked for lower interest rates, it held on to the rates and reiterated that inflation targeting was the way to go and the famous glide path was assiduously pursued. It was a case of saying that for monetary policy only inflation counts, and Nothing Else Matters (Metallica).
Third, the story of project clearances is now less convincing than it was in February when the earlier government said that over R6 lakh crore of investments have been cleared. This number has been increasing and after May there was news that more projects would move from the position of being ‘stalled’ and some names were also thrown in to add to the credibility. But today the euphoria on project clearances has come down and behind doors the whispers are that there has eventually been less traction here. The tune on the lips is, Won’t Get Fooled Again (The Who).
Fourth, along the way, the apprehension of tapering became a reality and the quantitative easing of the Fed has come to an end, and the expectation of an interest rate hike is now taken to be a reality. But across the Atlantic, Mario Draghi has assured of the continuation of easing and Abenomics still gives Money For Nothing (Dire Straits) and carry trade continues to flourish with money being channelled to the emerging markets.
Fifth, while the slogan of acche din is still being chanted, there is scepticism of the growth path. While 5%-plus appears to be taken for granted given the low base effect, the fact that industrial growth is crawling and unconvincing—both consumer and capital goods production growth are uneven and tend to become negative—is disturbing. More so as we are through with the so-called busy season and there has been limited traction. We Still Got the Blues (Gary Moore) and talk is already on that the 2015-16 Budget will be the game-changer—meaning, don’t expect too much during the rest of the year.
Sixth, the bright spot on the economic landscape has been the external account which has done well notwithstanding the yo-yoing the foreign inflows and the global turbulence in the forex markets. The rupee is largely stable and even the latest panic due to the rouble crisis has been less severe for the rupee relative to other emerging market currencies. The range of 60-62 rupees to a dollar looks like the medium-term trend though variations in the short run would keep the rupee between 63-64 to a dollar. Shine on you Crazy Diamond (Pink Floyd).
Seventh, the Indian psyche never changes. RBI has been talking of increasing financial savings, and everyone is talking of giving up gold (though those propagating the same never give up their own deposits). Tough measures were taken to control the import of gold and the bill was contained in FY14. With the CAD looking good, there was talk of the new government opening up this sector—and the 80-20 rule has been rescinded already. But we all know that the Indian public can get no Satisfaction (Rolling Stones) from anything but gold, and our gold imports have started rising again in October and November which is when they should have been spending on other goods. It is not surprising that neither consumption nor financial savings have taken off—even Jan Dhan could not do so by enabling opening of 94 million accounts.
Eighth, the stock market has been as crazy and unpredictable as ever. The indices have been impervious to low economic performance.
However, the rouble crisis has hit it hard. But the stock experts keep talking of the Sensex reaching 30,000 soon and 40,000 by FY16. They would, as that is what their business is all about—it is like Dancing in the Dark (Bruce Springsteen).
Ninth, When the Smoke is Going Down (Scorpions), then what do we do? Close down institutions that have outlived their purpose? While several critics have been asking for the Planning Commission to be closed, it is happening now and soon it will be part of the socialist history.
The Commission has withstood many onslaughts including the jibe of each Plan being the same Plan for the ‘nth’ time! But what is less said is that while this institution will go, in typical Indian fashion, it will be replaced by another with a different name and a different set of experts. Jobs for the boys?
Last, the final blow has to come from the Sultans of Swing (Dire Straits) or the Arab sheikhs. How does one tackle predatory competition when someone is lowering the price? Lower them further, and squeeze them out of business. This appears to be the OPEC strategy and their decision not to cut production is a move that will debilitate the shale producers and push them out of business. Will this work or not? One has to look into 2015 and wait for the allegro to play out.
While all have savoured the slogans but not sat back Comfortably Numb (Pink Floyd), we all will get into the Act to make 2015 a better year. Happy New Year.
By Madan Sabnavis
The author is chief economist, CARE Ratings. Views are personal