After the withdrawal of
support by DMK, the stability of present government is in question. Now Samajwadi
Party has also started talking about early election in the month of October –
November of 2013. This clearly means Government have to work harder for its
survival than doing right things for the recovery of the economy. In the given
situation it is not possible for the Government to take tough steps and the
situation may worsen in coming days till elections are over and the new
government takes the charge.
The current account
deficit for the third quarter of 2012-13 is at 6.7% of the GDP which is the
alarming. Current account deficit was 5.4% of GDP in the immediate previous
quarter and 4.4% in the same period last year. The sudden rise in CAD will put
a pressure on rupee. Looking at political instability FII inflow in the country
is also likely to slowdown and this will have a negative impact on the rupee.
If rupee falls further than balance of payment condition will further worsen as
imports will become more costly. This reminds me to the situation of early 90s
when we had to pledge 20 tonnes of gold to overcome the balance of payment
situation. We can only pray that things remain under control when we have one
of the economists heading the country. We started economic liberalisation
process in 1991 when Mr. Manmohan Singh was the finance minister. The current
account deficit at that time was below 3% of GDP and now it has doubled in
current year pointing a big question on whether we have benefited from this
liberalisation and globalisation process or it is for the benefit of the
developed countries of the world where economic growth has slowed down.
Double digit CPI
inflation, higher interest rate scenario, high fiscal and current account
deficit and political instability are the negative factors for the economic
growth of the country. We all know that the GDP growth has fallen down to 5%
from peak of 8% which we had few years back. Recent budget has also failed to
address the major concerns of the economy. Stock market has also reacted to the
negatives and Nifty has fallen to 5600 mark and this volatility is likely to
continue looking at present political instability. This will once again force
people to play safe and park their hard earned money in Insurance, F.D.’s and
small saving schemes, which are unlikely to beat inflation in the longer run.
There is clearly a lack
of political will due to coalition or multi party government where major
partner cannot take important decisions on the policy issues without taking
smaller parties into confidence. Needless
to say the support of the smaller parties is available at some cost. I strongly
feel that the things are unlikely to change unless next general elections are
over and new government takes the charge. Hope that new Government will come
into power with decent majority where it has not to depend on smaller parties every
time. Till then Investors needs to be extra cautious while
investing in equity and should prefer SIP route of mutual fund with a time
horizon of 5 years plus.
