India in 2012 offered everything a keen Bollywood fan could ask for. The year opened with drama and suspense as the economy (the third largest in Asia) was struggling and government inactivity was stifling the market. Then, the political villains arrived to make the situation worse, leading to the much published corruption scandals which further dented market confidence. But – as ever in Bollywood – there was a happy ending and 2012 closed with the government intervention that was desperately needed. This came in the form of reforms in the retail sector, with Q4 showing improved growth rates and lower inflation which together provides renewed optimism for the sequel: 2013.
Economists’ growth expectation for India in 2013 range between 6-6.5% and much depends on the Indian government’s ability to implement further reforms in land, labour and tax. These reforms will provide a more investment-friendly environment and help renew the confidence in the country to help increase inflow of foreign investment into India, which I think will be the key driver of growth in 2013.
The budgets to be announced in February will be the Congress government’s final budgets before the elections in 2014. These will be key indicators of the government’s willingness to target long term goals. The budgets will set out planned spending on infrastructure, employment initiatives, key requirement which should all be positive signs for investment into the economy. The recent elections in key states of Utter Pradesh, Gujarat and Punjab in which Congress results were poor, show a shifting of power in the long term and the emergence of minor parties being favoured by the Indian public. There remains a concern that these budgets may, in effect, be used as a way of sweetening the poor voters who make up the majority of the voting population and could delay the removal of subsidies and further reforms. This would win back public confidence at the expense of market confidence.
The Indian economy does need a more competitive framework within key sectors which are projected to grow rapidly over the next few years. The retail sector (expected to see a £160bn food industry by 2015), Life science and healthcare (expected to grow to £40bn within the next three years), and the telecom market (which currently has 811.6 million wireless subscribers) all offer exciting opportunities for further development and will provide knock-on opportunities for supporting sectors of the economy. India is already home to world-class companies such as Bharat Forge, Tata Group, Mahindra, Reliance Industries and Infosys but competition from multi-nationals could help Indian corporations to develop further within this vast market by ensuring a more equal competitive environment. The multi-nationals will have the resources and expertise to target the key cities but also tap into the significant smaller cities and the rural markets, opening them for Indian companies.
International trade accounted for 53% of India’s GDP in 2012 and the slowdown in the global economy over the last few years has certainly impacted the country. However, with improvements in the Chinese, US and European markets already, India’s trading activity will certainly increase in 2013. During February, planned visits from UK Prime Minister David Cameron and French President Francois Hollande, demonstrate major Western economies have clearly identified the strategic benefit of engaging with India. Further collaboration between India and key markets will only enhance its position in the world market.
2013 for India is highly dependent on the Congress government and Manmohan Singh in particular to provide a final push to ensure that his vision for India continues well beyond 2013. Singh started this journey for India in 1991 and it is predicted that this year will be probably be his last in power so it is hoped he will go out in style. India needs to avoid building bridges that go nowhere, and continue with reforms which will ensure that she continues on her journey to become one of the giants of the world economy. In Bollywood films the villain never wins and I think the increasingly-informed Indian public will no longer tolerate political inactivity, so expect plenty more song and dance numbers.
Trushar
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