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Business News/ Opinion / Online Views/  Govt needs to turn things around for the economy
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Govt needs to turn things around for the economy

Milind Barve, MD of HDFC Mutual Fund, on what can reduce the pressure on the economy

Milind Barve. Photo: Abhijit Bhatlekar/mint (Abhijit Bhatlekar/mint)Premium
Milind Barve. Photo: Abhijit Bhatlekar/mint
(Abhijit Bhatlekar/mint)

Year 2012 turned out to be a surprisingly good one for equity markets. While opinion can be divided on the reasons for this, in my opinion, a rise in expectations from the government and not any real changes so far is largely responsible for the good performance of the equity markets.

While good equity markets are helping in managing both the current and fiscal pressures in some measure, not delivering on the increased expectations raises the risk of markets being disappointed and of increasing pressure on the economy once again.

The onus is now on the government to capitalize on the situation and to turn things around for the economy.

My priority list for the steps that should help is as follows:

l Implementation of the goods and services tax (GST): This should aid economic growth on one hand and increase taxes to GDP ratio on the other.

l Eliminating diesel subsidy: If implemented in stages, the positive effect of this can be substantial, on fiscal account obviously, but also on the current account as a step like this should accelerate capital flows. Improved cash flows to oil companies should also give them more resources to invest, thus aiding capital spending over time.

l Coal pooling should be implemented as soon as possible. This will, besides improving the viability of large investments in the sector, increasing power generation and GDP growth, and also give confidence for the next round of capex in power generation.

l Resolve bottlenecks for several large projects that are stuck for want of some clearances and allocations. This is necessary to instill confidence for new projects.

l Speedily implement schemes to deliver Aadhaar-based targeted subsidies to the deserving. The fiscal and social impact of this cannot be over-emphasized.

If there is material and timely progress in these areas, in my opinion, then there are reasons to be optimistic both for the economy and for the markets. Reasonable valuations on one hand and likely lowering of interest rates are also supportive of the markets for 2013.

Finally, with regard to fixed-income investments, 2013 is likely to be a year of lower inflation and interest rates. Medium to long-duration products are expected to perform better in such an environment.

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Published: 05 Feb 2013, 08:32 AM IST
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