The key to reviving the economy lies in restarting the investment cycle, which seems to have slowed down over the last few years.
Corporates tend to invest when there is a stable and growth-oriented policy regime, inflation is under check and interest rates are favourable. In the second half of 2012, we have had a stable and growth-oriented policy regime. Inflation has slowed from the highs of 2011. What is now needed is fiscal prudence as it will help control inflation and allow RBI to cut interest rates.
Along with this we also need to reform the cumbersome and tedious know your customer norms that tend to drive even willing investors away from the capital markets and encourage them to invest in real estate and gold. If this is done and investment demand for gold reduces, it will also have an additional beneficial impact on our current account deficit.
The outlook for the Indian markets and the economy for 2013 is positive as the government seems committed to its reforms agenda. Even global factors seem positive towards India as economies in other BRIC countries—China, Brazil and Russia—seem subdued while QE3 (the third round of quantitative easing in the US) will continue to provide additional liquidity. Other keenly awaited measures like the implementation of the goods and services tax as well as power sector reforms would go a long way in helping maintain this positive outlook.
