Governance Remains The Key Word

International agencies seem to be too bullish on the prospects of the Indian economy. First it was the World Bank which put up a very rosy picture of not just India but the whole world growing well going forward. It was followed by its twin cousin the IMF which too seems to be equally bullish about the growth prospects of global economies and more so India. 

Some signs of growth are already becoming visible in the western world including the US and Europe. In the Indian context too, The IMF is looking at India growing by 5.4% in FY15 after a 4.6% growth that it is likely to register this year. According to the IMF, a good monsoon and higher exports, following a growth uptick in other regions, particularly the west, are already helping the Indian economy. Th at is expected to bring in further traction, based on which the growth estimates are placed. In fact, growth for FY16 is being pegged at 6.4%. These are a shade lower than what the World Bank has recently projected for the two years.

The growth upgrades for the economy are coming in at the most opportune time. 2014 is looking to be that critical inflection point from where India will once again shine. But all this comes with a caveat. The desperate need for good and pragmatic governance is getting accentuated. Hopes rest on a stable government assuming power, which can make some good decisions and push growth. All the harm that bad governance and indecision could do to the economy is already happened. It would certainly not be wrong to say that bad governance has bottomed out. 

But as they say, bad habits die hard. Even in its last lap of governance the UPA and particularly the Finance Ministry is not getting over its jugglery. Last year when P Chidambaram talked about garnering Rs 54000 crore through the divestment of government’s stake in companies it owns, many raised eyebrows, some in surprise some in suspicion of how he would manage this feat. But PC being the statesman that he is has managed to come very close or rather even surpass what he had budgeted. In a bid to finance the ever increasing fiscal deficit, the Finance Minster is leaving no stone unturned to ensure that he gets in what he wants.

Throwing the interest of all concerned stakeholder out of the window, the Finance Minister has begun arm twisting cash rich PSUs into doling out liberal special dividends. Coal India shelled almost Rs 16000 crore just a fortnight ago easing some pressure on the Ministry. Point is, the money was supposed to come from stake sale of companies and not skimmed from their balance sheets. Rs 40000 crore was budgeted to come from the disinvestment of companies like IOC, Coal India, NHPC and from floating fresh IPOs of HAL and RINL.

The minority shareholders of these companies who are shelling out that extra cash to fi ll the government coffers via special dividends are deriving absolutely no benefit out of it. But, looking at the pace of things, the government is sure to end up easily garnering the Rs 55000 crore that it wanted to. A little more aggression could also help it cross over to Rs 60000 crore.

Adding up all the figures, the net amount will easily cross Rs 55000 crore and may reach Rs 60000 crore This is certainly a big relief for the government which is toiling very hard to keep its fiscal deficit under check at 4.8% of GDP.

All this has one more angle to look at. Right now the economy is under a tremendous pressure. It is this pressure that will force the government to take some drastic steps and putting its house in order. The situation demands that action be taken now to avoid facing any problems later. This is universally true of any government that comes to power in May 2014.

All you can hope is for governance to change for the good. This issue looks closely at the Aam Aadmi Party’s economic agenda and outlook and also the market’s expectations from it if it had to come to power. While none we interacted with wanted to be named (citing politics to be a sensitive issue, especially with elections so close), we have tried to bring across the point very subtly on what needs to be considered by this fledgling political outfit which is fast finding its foot in the political arena. Yogendra Yadav a very prominent member of the AAP think tank and its official spokesperson spoke to us on the various issues that are relevant for the party and the nation today. it throws light on the party’s DNA and its capability of handling the steering of the nation.

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Th at apart our regular columns and expert panelists bring you a whole lot of interesting perspectives and analysis on stocks and funds. Do write in to us on comment@dsij.in and tell us, what you feel about the new and revamped Dalal Street Investment Journal.