Let political stability flow into economy

By A Balasubramanian

The recent election outcome not only reflects the return of optimism, but has also created what could possibly be a decade-long stability on the political front. For any economy, political stability and continuation of economic policies are highly crucial. The big ticket reforms established in the last five years hold huge potential to uplift Indian economy to its next level.

There is no doubt that the economy is going through a challenging phase in the last six months, reflecting in the slowdown of high frequency indicators such as IIP data, manufacturing index, automobile sales, consumer discretionary and in many other allied sectors.

The recent fall in the GDP growth rate to below 6 per cent can also be largely attributed to the current uncertainty hovering around the NBFC sector. Further, it can also be partially attributed to slowing savings rate, rising expenditure and the job growth not being up to expectations, among many other things. While these concerns could be true, but one must note that this is just a nine-month phenomena and this would surely get reversed in the coming year with various government initiatives addressing some of the issues related to growth, while keeping the markets buoyant.

These are the factors that could potentially keep the markets afloat. First and foremost, the interest environment is turning positive, not only in India but also globally interest rates are trending downwards. As interest rates become lower there is a higher probability that it can lead to a lower borrowing cost, thereby see increase in private capex, thus improving profitability.

Secondly, the ‘future ready’ reform — GST will play a pivotal role. The tax rates can be further re-visited and refined which would not only boost the consumption sector but also get a higher tax compliance ratio. I would also assume that the implementation of GST can be further cascaded to district level for collections and to monitor the adherence. Any sharper focus of this kind has the potential to make GST as the single largest revenue item providing enough cushion for Infra and Social spending.

Third, the services sector is not only the dominant sector in India’s GDP, but also the key driver of India’s economic growth providing large scale employment. However, there are many services that are being rendered free, one must assume that such services do not add any revenue to the exchequer though it adds convenience to the customers. Therefore, there is a clear rationale that can be meticulously evaluated as to how such services that are currently being provided free to the large masses can come under the tax prevalence. Such new innovative policies would contribute largely in the long run.

Lastly, as it is rightly put by the prime minister and a widely acknowledged slogan: Sabka Saath, Sabka Vikas (development for all), Sabka Vishwas (trust of everyone), the real estate and housing sector could surely boom under this concept. As it is, most Indians have the aspiration to own a house in the long run. This sector holds huge potential in not only creating both skilled and unskilled jobs, but can also create huge pull demand in allied core sectors such as cement, steel, paint and home decor, among many others. If this sector is given an unbiased attention, it will not only create more jobs, but could also boost the revenue to state governments, thus aiding growth and revenue generation.

Ultimately, earnings of companies always follow high optimism supported by the right policy push. I am also hopeful of renewed earnings over the next 12 months. Therefore, investors should look at long-term investing in equity and keep building their portfolio at a continuous interval across market caps. One should avoid listening to short-term noises and other negativities which would surely get addressed through structural decision making process coming from both the government and respective regulators.

(The author is CEO, Aditya Birla Sun Life AMC)