The India story will hold

The beginning of the year is a good time to look at the year ahead. And this will be a year of uncertainty and volatility, much of it due to events beyond our control. But at the same time the underlying trend is positive.

In January 2019, nobody thought that Covid would come and hammer economies; that after Covid, Russia would invade Ukraine, upending the oil and gas market; that thereafter interest rates worldwide would remain high and there would be unending war in the Middle East; that governments in Europe would swing to the right or for that matter Donald Trump would get re-elected and promise policies that could disrupt the established order. And our own growth seemed steady. 

Yet in spite of all this turmoil, markets all over the world have been booming. And the BSE Sensex is more than double what it was in 2019. But over the last few months, the markets have come down off their
all-time highs. There are several reasons for this, all of which are unlikely to change. 

To start with, there has been a significant slowdown, in our growth. For the last two years, growth has been due to huge capital expenditures by government on infrastructure and social programs. And while GDP has grown, the per capita GDP has inched up slowly. People don’t feel better off and have been spending less. In turn, the private sector has focussed only on reducing debt, and utilisation of capacity built in earlier years, has been slow in investing. At the same time, over the last year, with both the central elections and elections in many states, governments focused on handing out freebies, which will soon become wasteful and unaffordable. 

Going forward, much will depend on whether the wars in the
Middle East come to a standstill (even without settlements), will Trump trigger off trade wars, and what will happen in China fighting against its own slowdown and against the West and how will it move in its
relations with us. 

Even against this background, Business India believes that the India story will hold. The private sector is now poised to invest by expanding capacities, and government spending may pick up too. The markets will continue to receive massive inflows from domestic sources, even if the FPIs stay away.  Rural and urban consumption, both still very low by any global standards, will continue to grow. But all this also depends on the government opening up and liberalising much faster. 

So even with this volatility in our markets, Business India would recommend using the dips to build a portfolio of all classes of investment, but particularly the stock markets, for long term prosperity. With the right government policies, and a bit of luck with the weather and favourable internal geopolitics, we could grow at 8, 9 or even 10 per cent. But whatever happens, we will chug along at 5-6 per cent.