Once all the campaigning and election promises are over and done with, there's a whole lot of work that is yet to be done.
This is a Financial Blog, so I'm not going to get drawn into an election debate, but I'd still like to make a few points.
- India has survived the global financial tsunami, with its economy and banking system in far better shape than many countries.
- While politicians from every political party are only too eager to take credit for this, there were obviously other reasons for that outcome.
- The Indian Central Bank ( The RBI) has been very prudent through this crisis, monitoring the balance sheets of banks and avoiding frantic interest rate cuts. While Bank non - performing loans will definitely rise as the economy slows, overall most banks look to be in good shape. Leverage levels in the banking system, are far far lower than those at the largest US Banks.
- The Indian Economy is a domestically oriented one, in comparison to some of her Asian counterparts who are export driven economies. Domestic demand has held up well so far. (although rising unemployment over the next year could hurt demand.) GDP growth isn't driven by Indian IT service exports or the financial sector alone. Agriculture and Industry (mining, manufacturing, electricity) as well as other Services (transport, communication and construction) make vital contributions
- Although India will be unable to match the strong growth rates of recent years, current GDP growth rate estimates range from a conservative 4.5% to an optimistic 6.5%. I would think the lower end estimate to is more realistic; as I do not believe we are near the end of this down turn just yet
- Given increasing levels of urbanisation, there is still a lot of infrastructure that needs to be set up. Transport infrastructure and Power Generation investments will have to increase, irrespective of which government comes to power.
- Over the last few months, every political party has been campaigning aggressively and trying to secure allies incase the need of a coalition government arises ( a very likely outcome!). As the game of 'side swapping' and 'outside support' take centrestage over the next week, I hope these guys don't forget that they have a country to run.
- India has great potential to emerge stronger from these trying times. Indians are savers and hard workers; and as a bonus: Companies operating here have a huge domestic market to cater to.
- Lets not froget that they are many many people in this country for whom the Sensex at 21,000 and the BRIC (Brazil, Russia, India, china) nation concept means nothing!!!! Years of neglect by the political system post election time has resulted in extremely poor standards of living. Given that a social security/ welfare system is out of reach to so many, the government will have to pay close attention to the needs of this section of 'emerging India ' when times get tough.
- Over the next 6 months many difficult decisions will have to be taken as unemployment numbers and bank non performing assets rise. This means labour disputes at factories and companies (especially the ones that over extended themselves) will need to approach the banks for debt restructuring. The government will have to work towards finding a solution to these problems rather than just resorting to populist policies at a time when tough decisions are needed.
The Equity markets here have been following global markets upward since early March, so lets wait and see how they respond to the results when they open on Monday morning.
Lastly, here is a clipping from the Business Standard newspaper( 8th May, 2009)