National Policy for Women set to improve women's contribution to the corporate economy

While women have made rapid strides in corporate world over the past few decades, the growth has come at a price. Women are now managing both a career and a home, rather than either of them. As a result, the constant pressure on women is now higher than ever. This is especially true for working mothers with small children. It will be some time before a full transition can take place for women and men to become equal partners at home and work. But till then. recognising these very modern challenges, policy makers are stepping in. 

Opportune time for a National IPR policy

The US Chamber of Commerce’s International IP index for 2015, ranks India second from the bottom among the 38 countries ranked. Its ranking is better than only Venezuela’s. It is also miles behind the rest of the BRIC countries, where Russia leads, followed by China and Brazil.

It was thus an opportune time for the Government of India to make India’s intellectual property rights regime more robust. The cabinet green flagged the National Intellectual Property Rights Policy during the last week. 

India Economy Outlook for 2013-14: 5 key takeaways

The Economic Advisory Council to the PM recently released the document on the ‘Economic Outlook for 2013-14’, essentially for the remaining 2^nd half of the current financial year. Some of India’s near term challenges include slowing growth, fiscal deficit concerns and moderation in capital flows. The report does, however point out to positives as well – like softening in inflation pressures and potential curbing of the current account deficit.

RBI's challenge - balancing currency and debt

Even while India tries to garner more NRI deposits to stabilise its currency, it is faced with a commensurate increase in external debt. At a time when GDP growth has slowed down significantly and external debt will likely rise, external debt sustainability is worth watching out for. 

In a bid to stabilise the sharply depreciating Indian rupee, the RBI announced measures to garner Non Resident Indian (NRI) deposits last week. While a sharp policy move was required to ensure stability of currency, the next challenge for the RBI is ensuring a balance between holding up the rupee and keeping India's external debt in check.

According to numbers from the Ministry of Finance, India's external debt in 2012-13 was at around US $ 390 billion in, an increase of around 13% from the corresponding period of the previous year. This is partially on account of increase in NRI deposits, among other factors.

Technically, the absolute size of the external debt is less relevant, as long as the economy is large enough to sustain it. A common measure of measuring debt sustainability is the External Debt to GDP ratio, or the proportion of borrowings to the total income of an economy.

For India this ratio has been on the rise over the past two years, partly on account of the overall increase in debt and partly on account of the fact that India's economic growth has been slowing down. From the chart, it is evident that debt has been rising overtime since 1991 every year, except in 2009, when it fell slightly from the previous year. Of course, India has not been able to sustain its previous economic growth, which is part of the reason for the deterioration in the ratio.

If the worst of India's economic slump is behind us, we might see some turn around in the figure, even as more debt is garnered to sustain the currency and the CAD. Nevertheless, the ratio is a figure the policy makers should be keeping an eye on.

5 key takeaways from Guv's speech

 

- Manika Premsingh

On his first day as RBI governor, Raghuram Rajan made a speech that is as articulate as it is informative. 

A number of measures were announced to enhance the functioning of the financial system in the country. There was also big picture speak, that gives us some idea on what is top of mind for RR at present. Here are, according to us, the five issues that are important to him.

#1.Expect unanticipated policy actions:  He’s not saying that policy will necessarily be unanticipated, but given the current times and the need for agility, we can safely expect it on occasion. In his own words: “That is not to say we will never surprise markets with actions. A central bank should never say “Never”!”, even if “…the public should have a clear framework as to where we are going, and understand how our policy actions fit into that framework.”

#2.CPI and currency markets as key policy triggers:  Even though the WPI has come off in the recent months, CPI inflation still remains high. The governor has mentioned inflation management more than once in his speech, so we should expect more inflation fighting from the Reserve Bank. We should also see more hands on currency management, which is much needed at present! To quote: “The primary role of the central bank, as the Act suggests, is monetary stability, that is, to sustain confidence in the value of the country’s money. Ultimately, this means low and stable expectations of inflation, whether that inflation stems from domestic sources or from changes in the value of the currency, from supply constraints or demand pressures.”

#3. Kingfishers of the world, be vary: RR will quite possibly crack down (to whatever extent possible) on failed big business and its sometimes questionable ways of staying afloat. As he says: “Promoters do not have a divine right to stay in charge regardless of how badly they mismanage an enterprise, nor do they have the right to use the banking system to recapitalize their failed ventures.”

#4. Efficient financial management for households: Not only is the governor interested in protecting the common person’s savings from being eroded by rising prices, he also wants to ensure that people are able to pay their bills far more conveniently than is now the case and also have greater access to finance. Evident from: “households have expressed a desire to be protected against CPI inflation. Together with the government, we will issue Inflation Indexed Savings Certificates linked to the CPI New Index” and “we will implement a national giro-based Indian Bill Payment System such that households will be able to use bank accounts to pay school fees utilities, medical bills, and make person to person transfers electronically. We want to make payments anywhere anytime a reality.”

#5. Popularity is hardly the objective: Good to know. While we don't want a governor who will always be at loggerheads with the RBI itself or the centre (since it means slower and challenged policy environment), we certainly don't one who is likely to get influenced by any vested interests or pure public sentiment.  Here is what he says about the matter: “The Governorship of the Central Bank is not meant to win one votes or Facebook “likes”. But I hope to do the right thing, no matter what the criticism, even while looking to learn from the criticism”.

The new governor parts with an allusion to Rudyard Kipling's poem 'If", an interesting choice that probably indicates his realisation that this battle could get tough. For those of you who would like to read it, here is a link to R.K's “If”. 

Are women in Delhi feeling safer?

- Manika Premsingh

Women are important contributors to the world, and indeed the Indian economy, but face challenges at multiple levels. These include lack of adequate social and infrastructural support for education and skill development, entry to the workplace, holding on to jobs, adequate representation at senior level in the work place, equal pay to male counterparts among others.

While much progress has been made over the past decades, there is much more that needs to be done, especially for developing economies like India. In this post, we look at how women feel about one specific factor that has been top of mind in the recent past for India - travel safety of women.

Six months after a horrific and fatal gang rape of a 23 year old student rocked the capital, we asked 30 women in Delhi and the National Capital Region (NCR) about their view on safety while travelling. The initial results of the Orbis Economics survey reveal that 70% of women in Delhi and NCR do not feel safe travelling in the city at all or do not feel safe a major part of the time. 

However, half the women do feel that some measures have been put in place to improve the safety standards on Delhi's roads. The other half, feels unequivocally, that there is absolutely no change. At any rate, the upshot seems to be - while majority of women do feel unsafe travelling in and around Delhi, a significantly lower proportion feels that nothing is being done about it. This is a positive development, even to a small degree. But it needs to continue to make a real change. 

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Delhi-Kolkata industrial corridor - great idea that deserves solid implementation

- Manika Premsingh

This week's post is driven by the graphic below - this picture was tweeted by the PMO India, mapping out the proposed Amritsar-Delhi-Kolkata industrial corridor. It sounds like a fantastic idea on paper since:

- It covers states accounting for 40% of India's population

- Industry in India is still quite small compared with the country's level of development

- Industrial development can provide the option for movement of labour outside agriculture

- It can be an important employment provider to India's labour surplus

- Industrial development can lower India's dependence on imports from abroad, important for a country with a chronic current account deficit

The catch: implementing it, and implementing it right. Democratic governance can often come with challenges of consensus building that can slowdown growth and development. Can this implementation challenge be addressed head on? How?

India's falling investments: An exploration

India reported another set of dismal GDP number today, with Q4 2012-13 growth at 4.8% and the year's cumulative growth at 5%. While there is evident weakness across categories of GDP, in this post we look at one specific category of the GDP that has been a source of concern for sometime - investments. In this post, a version of which appeared first on IndiaSpend, Orbis Economics' Manika Premsingh takes a deeper look at Indian investments. (Note: the article was written before the Q4 GDP release, so those numbers are not included in this analysis). 

While India was seen as part of the new haloed ‘BRIC’ group at the turn of the century; a key emerging economy for the future, voices of how it might, a decade later, be a lost story have got louder over the recent past. Is the pessimism justified? We cannot say for sure, for the verdict itself is still out there. But, what we can do is try and understand what has led India to its current predicament.

One look at India’s recent economic performance and it is clear that India’s growth has fallen way below average. Growth in the Indian economy, as measured by the gross domestic product (GDP)   for the last quarter fell to a decade low, coming in at 4.5%, in stark comparison with the average growth of 8% over the past decade. The economy’s GDP release shows two categories – GDP by economic activity and GDP by expenditure, which are essentially reflections of each other.

GDP by economic activity comprises of three sectors – agriculture, industry and services. GDP by expenditure is essentially the usage of incomes generated in the economy. It comprises the private final consumption expenditure (PFCE), which is nothing but spending on various goods and services by the consumer; government final consumption expenditure (GFCE), which is government spending on various goods and services in the economy; gross capital formation (GCF), which is essentially the domestic investments and net exports, which is exports less imports.

Tumbling domestic investments

A close look at the expenditure components of India’s national income reveals that one of the major drags on GDP growth in the recent past have been domestic investments or GCF. Investments have been the most unimpressive aspect of India’s economic growth or in other words minimal growth in investments has significantly contributed to slowing down in India’s growth in the recent times.

Why is the investments component so important for India’s growth? First, the contribution of investments (which are defined as the sum of gross fixed capital formation, change in stocks and valuables) to overall GDP for the third quarter of 2012-13 is at a falling 34% on account of very little growth in the component over the recent past.

As per the Central Statistical Organisation’s (CSO’s) advance estimates, GCF or investments are expected  to have grown only at 3.9% in 2012-13, despite having been a no show in 2011-12 as well (growing by a negligible 0.5%). This is in stark contrast with the two prior years when investments grew in double digits (see chart). Not only does this hit overall GDP growth, it is also a reflection of how investments in the economy have come tumbling down. The combination of slowing global economic activity, its impact on domestic economic activity and high inflation are some of the reasons for slowing down in investments.

Gross capital formation (2004-05 prices, market prices)
Year	Growth
2005-06	16.2
2006-07	13.4
2007-08	18.1
2008-09	-5.2
2009-10	17.3
2010-11	15.2
2011-12	0.5
2012-13*	3.9
* CSO projections
Source: CSO

Recession and inflation impact Indian investments

During buoyant economic times, investments trends to be robust as well, since business sentiment is upbeat and preparing for future opportunity requires investment today. The reverse happens during recessions, when risk-taking ability declines as does the optimism for the future. The lack of perceived future demand further reinforces challenging economic times, making it a chicken and egg situation. Further, during years when growth is expected to slow down or has already slowed down, incomes in the private sector become stagnant or grow slowly. This leads to either lower absolute real incomes or lower growth in real incomes, where real income is measured as income adjusted for the effects of inflation. So, rise in prices or inflation remaining the same, if incomes have not grown over the year, effectively real income is less than what it was during the previous year. With prices rising and incomes remaining unchanged or growing slowly, consumers need to spend more and more to run their households. This, leads to less in the hands of the consumer to save and invest and gets reflected in overall investment slowdown overtime.   

Thus, it is not surprising, that in GCF, has grown at 1.4% over the April-December 2012-13 period in comparison with the corresponding period of the previous year. This is an even more disappointing number in light of the fact that in during 2011-12 it grew by 1.9% per cent, which was a low enough rate as it is. This growth also compares rather unfavourably to other components of the GDP like private final consumption expenditure and government final consumption expenditure at 2.9% and 5.7% respectively. (see table for more details).

GDP at market prices (2004-05), Rs crore, April-December
	% of GDP		% growth yoy
	2011-12	2012-13	2011-12	2012-13
Private Final Consumption Expenditure	61.1	60.7	7.4	2.9
Government Final Consumption Expenditure	11.2	11.4	9.0	5.7
Gross capital formation	40.7	38.1	1.9	1.4
Gross Fixed Capital Formation	34.1	33	5.0	0.1
Change in Stocks	2.3	3.4	-30.0	50.5
Valuables	2.4	1.7	3.5	-28.1
Exports	24.3	24.3	16.1	3.3
Less Imports	33.7	34.4	20.5	5.6
Discrepancies	-1.7	0	-62.1	-97.8
GDP at market prices	100	100	6.8	3.6
Sources: CSO, Orbis Economics Estimates

Added to this situation, is the fact that Indian inflation has been quite high in the recent times, at over 7% in 2012-13 and almost 9% in 2011-12 as measured by the Wholesale Price Index (WPI), India’s headline inflation index. At a recessionary time, this has led to the Indian consumer being squeezed on both sides – on the one hand incomes have not grown and on the other hand prices have risen quite fast. As a result, a savings and investment slowdown was only to be expected.

Is an investment pickup possible?

The current conditions in investments while worrisome, do not entirely call for a write off in the India story. Why? Because, it is a typical phenomenon seen during a recession and a recession is a fact of economic cycles. There are no booms without busts and vice versa! While policy impetus can soften the impact of a recessionary scenario, it cannot entirely do away with a recession. We have to wait for the cycle to turn, and that turn is already becoming visible to a small extent. Inflation, for one, has come off to acceptable levels, which can be a spur for savings and investments. India’s interest rates are being softened, which is also a plus and policy reforms have revived foreign interest in India. So a turnaround is quite possible even if it takes some time.

Read the article as it was published on IndiaSpend here

5 reasons Indian women should invest in property

Only 11% of properties in India are in the name of women today. Cultural factors like widespread patriarchy, passing on of family property to men and the fact that men have traditionally been the breadwinners are some of the reasons for this trend. However, rising economic self-sufficiency among women could change this trend in the coming years. 

In fact there are a number of good reasons why women today, should in fact, own property, as Manika Premsingh of Orbis Economics points out below in an article that first appeared in Women's Web.  

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Indian women today are more self-sufficient than ever before as is evident from the fact that a larger number of women are getting educated outside their hometowns, that they are stepping out of the home to join the workforce in increasing numbers, and the fact that they are making more independent social choices like marrying at later ages and living solo.

Women’s empowerment and the changing socio-economic dynamics in India call for a closer look at why Indian women need to invest, and in what areas. With a focus on attaining stability, security and even wealth, Indian women have to make a critical decision – that of real estate.

In this article, we look at five reasons why Indian women need to invest in property:

1. Higher income

As women increasingly occupy the formal workplace, their incomes are on the rise, and as a result they have money in their hand. While rising prices, more consumer goods and other demands of the modern life mean that a fair bit of these incomes go into spending, two income households and a rise in overall level of incomes also means more money to save. Since property investments can save on rents and give good returns over time, it is one of the important options to consider.

2. Investment incentives

In a bid to encourage Indian women to invest in real estate, a number of state governments like Delhi and Gujarat have waived off registration on property purchase by women. While this is a relatively small proportion of the total amount spent on property, it is still an appreciable sum in absolute numbers. Already, in Gujarat, there have been reports of a rise in property ownership by women. While this does not necessarily reflect that more women are investing in property – as menfolk of a family can buy property in the woman’s name to avail of the waiver in registration – it does encourage women to invest in property too.

3. Investment portfolio diversification

Any financial advisor will recommend having a diversified investment basket with equities, debt, commodities and real estate as the major choices. This helps in lowering the risk profile of the investor on the one hand and also allows the investor to be rewarded for high risk-high return investments. At present, property is seen as an attractive investment since equities have not performed very well in recent years, debt offers limited fixed return, and prices of commodities like gold have also started coming down now.

4. Rising age of marriage

As more and more Indian women get educated and join the workforce, the average age of marriage in a segment of the Indian population is on the rise. Added to this is the fact that education and work are often away from the hometown, so single women living independently is a common feature today, especially in the metros. This in effect means that women rent houses independently as they start working. A regular salary is a good place to start when thinking of investments, and if cash is spent on rents, when possible, putting it into an appreciating asset like real estate can actually be a good decision.

5. Going solo

Not only is the average age of marriage on the rise, but single people are increasingly beginning to remain so. According to research by Euromonitor, India is one of the 3 countries with the fastest growth in the single population, the other two being Brazil and China. This means that more and more people are now choosing to stay single, particularly as women become financially independent and are able to provide for themselves. In this scenario, women need to invest in real estate, since it provides security, and a good saving since it generates good returns. Even for those women who are married, divorce rates in India are rising, and property in one’s own name can help money management after divorce(or in other unfortunate circumstances like death of a spouse or needing to walk out of an abusive marriage).

Over time, it is likely that these trends will get further reinforced as the economy grows and develops, since it will create more job opportunities for women, and allow education to reach a larger mass of people. There is a new breed of independent Indian women visible even today and overtime, we will see it evolving further. This calls for a more serious thought on how and why women need to invest – and having a house of one’s own could be a very good idea!

Union Budget Analysis - Taxation

- Team Orbis Economics

Image Source: www.indialistnew.com

Even though the Union Budget 2013-14 did not make any major changes to tax rates and structures, it did, however, make announcements that can impact individuals and businesses. These include an increase in surcharge on individual income (and entities in the category)above Rs. 1 crore and company income above Rs. 10 crore, decrease in excise duties for specific sectors,  encouragement to service tax defaulters to pay backdated tax dues and reduction in export duties in some sectors and making way for an eventual GST law.

Below are details of how the Budget’s tax related announcements can impact you:

   Income Tax: In a bid to increase revenue collections, the government has decided to increase the tax liability of the ‘super-rich’ by imposing a surcharge of 10% on individuals and entities whose income exceeds Rs. 1 crore for a period of one year. If you fall under the sole-proprietorship category or partnership firm, this will mean an increase in the amount of tax you need to pay, since the law does not distinguish between the firm and the owners as distinct entities. By the same token if your entity’s income is less than Rs. 5 lakh, you can now avail of a tax credit of Rs. 2,000.

   Corporate Tax: If your business income exceeds Rs. 10 crore, there has been an increase in surcharge by 5 percentage points on income to 10%. This will impact after tax earnings negatively, but the good news is that much like the surcharge on income tax, this too is for a period of one year only.

   Excise Duty: If you function in the readymade garments sector, there is good news for you, with ‘zero excise duty’ now applicable at specific stages of production. Similarly, if you are in the handmade carpets or producing textile floor coverings of jute and coir, you are exempt from excise duties.   

   Service Tax:  If you are a service tax assesse but have failed to pay taxes in the recent past, you can now do so without fear of penalty or interest payments. The “Voluntary Compliance Encouragement Scheme” announced in the budget allows you to make a payment since 2007 in one or two instalments at prescribed dates. On another note, if you run an air conditioned restaurant that could avail of service tax exemption if you did not serve alcohol, the distinction no longer applies and the tax is chargeable to you now as well.

   Customs Duties: Even though overall export duties have remained unchanged, sectors that have been hit on account of the global recession, have been provided a fillip in the budget. For instance, excise duty on leather goods has been decreased from 7.5% to 5% and duty on pre-forms of gem stones has been decreased from 10% to 2%.

  Goods and Services tax: While the budget announcements on GST do not impact immediately, it does prepare ground for a GST law. In fact, it has also set aside a corpus to compensate states for loss in tax revenues once a new GST law comes into effect.  

Budget Terms Explained II: Indirect Taxes

- Team Orbis Economics

Image Source: www.freedigitalphotos.net

In our previous edition on Union Budget concepts we started explaining taxes, with a focus on direct taxes. In this one, we look at indirect taxes. Along with announcements on direct taxes like income tax and corporate tax, the annual Union Budget also announces changes to indirect taxes like service tax, excise duty, customs duties and value added tax. Indirect taxes are important because they impact the final price that can be charged to the consumer by a business and the costs as well and the general price levels for the consumer.

What are indirect taxes?

An indirect tax is levied on goods and services, as compared to a direct tax that is levied on persons or organisations. While a direct tax obligation has to be borne by the person or organisation concerned, the indirect tax obligation can be passed on to customers or consumers.

What are the major indirect taxes in India today?

·   Exise Duty or Central Value Added Tax (CENVAT) – is the tax charged on the manufacture or sale of a good in India by the Central Government. The standard rate of excise duty was increased to 12% from 10% in the last budget. A change in this tax could affect the price of semi-finished inputs as well as the price of a product for a manufacturer.  

·     Value Added Tax (VAT) – is a tax charged on the difference between the price of a product and the cost of producing it. It is essentially a sales tax charged by the State Government. Being a state tax, the VAT is different for various parts of India. Being a state subject, changes to this tax rate are not announced in the Union Budget.

·     Service Tax – is a Central Government tax charged to service providers. It is a tax on the gross value of service provided to consumers. The current service tax rate in India is at 12%, after having been increased from 10% in the last budget. For a service provider, changes to this tax will change the final price of the service. As a customer availing of a service, this tax will impact your costs of living or costs for business.

·     Customs Duty – are the duties charged on both imports and exports of goods from India, with import duty being the major customs duty. The peak rate of customs duty for non-agricultural goods was maintained at 10% in the last budget.

What is expected in Union Budget 2013-14 with respect to indirect taxes?

The implementation of a uniform Goods and Services Tax (GST) is one of the most awaited indirect tax moves of the government. GST aims to be an umbrella indirect tax that will replace all the other indirect taxes in India today. 

Budget Terms Explained I : Direct Taxes

- Team Orbis Economics

Image Source: www.freedigitalphotos.net

Tax announcements are perhaps the most keenly awaited aspect of the annual budget every year by individuals and businesses alike. This is because they directly impact either the income in hands of people and enterprises or increase the prices they pay for products and services. In this edition of budget related concepts we look at direct taxes. These taxes – like income tax and corporate tax – affect the incomes directly. As a result direct taxes can impact the profitability for businesses and potential demand from consumers as well as disposable incomes for the income tax payers.

What are direct taxes?

Tax heads can be divided into two parts – direct and indirect. Direct taxes are called so because their impact on an individual or esnterprise’s income is exactly that- direct. An increase in direct tax rate results in less income in the hands of the payee and a decrease in the direct tax rate results in higher income in the hands of the payee.  

Direct taxes are divided under various heads like income tax, corporation tax, property tax and capital gains tax among others. However, the two most important direct taxes are income tax and corporation tax.

What is income tax and why is it important?

Income tax is the tax on the total income earned by an individual. All salaried people with an income above a threshold limit pay an income tax, it is also the only direct tax liability for businesses that function as sole proprietorships. As per the last Union Budget (2012-13), income tax was payable for a level of income above Rs. 2 lakh. It is divided into various slabs, with 30% as the rate for all with an income over Rs. 10 lakh.

Changes in income tax rates thus determine the money in hand for salaried individuals and sole proprietors. As a second round effect, they impact the spending decisions of consumers that buy goods and services produced. Discretionary consumer spending on goods and services i.e. that, which is not compulsory - like entertainment, beauty and health care and luxury goods, for instance, are most likely to get impacted by tax rate changes. So as an individual, income tax changes will determine how much you can spend and save, and as a business, it will help you plan for demand for your products and services in the next year.

What is corporation tax, who pays it and why is it important?

Corporation tax or corporate tax, as it is often called, is the tax levied on all registered companies in India. These can be both Indian and foreign companies present in India. While Indian companies have to pay corporate tax on their overall income, even if it is earned outside the country, foreign companies only need to pay tax on their income earned in India. Corporate tax rates are important because they can impact the net incomes of companies and also impact the B2B demand for various products and services. At present the effective corporate tax rate for Indian companies is at 30%.

Outlook: Indian Economy 2013

Image source: www.olacabs.com

- Manika Premsingh

2012 was not a year to remember for the Indian economy, with a slowdown in growth, persistently high inflation, concern on government deficits, dipping foreign investments, depreciating currency and shrinking foreign trade. While government reforms announced in September have contributed to some turn around, in 2013 India’s challenges are far from over. At best, it will be a mixed bag with the economy performing slightly better on some parameters like growth, inflation and investments but the external sector and government finances are likely to remain under pressure.  

Latest forecasts for the Indian economy suggest a mild turnaround in 2013, with the International Monetary Fund (IMF) expecting the economy to grow at a sluggish 6% during the year in its September World Economic Outlook report. This is small rise from the around 5.5% levels seen in the recent quarters, the lowest growth in years. Given the ongoing cyclical recession for the domestic economy and continued uncertain global economy, this forecast is quite likely to be correct.

Continued subdued growth is also likely to play some role in moderating inflation, which has recently come off to around 7.5% levels on a year on year basis. Though there will be a floor to the moderation given that the government is looking to rationalise prices of currently subsidised commodities like oil in a bid to improve its deficit situation. With 2013 being the pre-election year, however, government expenditure could remain strong. Combined with subdued economic growth, the fiscal deficit to GDP target will likely be breached in 2012-13, and guidance for 2013-14 in the Union Budget will suggest whether or not there is room for optimism on the deficit front in 2013-14. 

Nevertheless, the displayed intent to keep deficit under check (as evident from the ongoing rationalisation in otherwise subsidised goods) is likely to impact foreign investment inflows into the country positively. S&P, the global credit rating agency has already warned that India could lose its investment grade rating if it does not get its growth and fiscal act together. With the government announcing foreign direct investment (FDI) relaxations in a number of sectors in September, including the politically sensitive multi-brand retail, there has been some positive development in foreign inflows. Thus, we could see continuation in healthy foreign inflows in 2013, which were quite subdued for most part of 2012-13 up to September.

It does need to be noted however, that the impact of the continued indifferent global economic scenario will also play on foreign inflows, as on India’s exports. So far in 2012-13 (April-November) goods’ exports have declined by almost 6%, particularly as India’s traditional trade partners - the advanced economies of the West - are struggling. While imports have also shrunk on slow economic growth in India, the relatively slower decline, traditional deficit and some pickup in the economy next year could lead to a continued widening in the trade deficit next year, even though the deficit widening has been relatively muted this year.

As the trade deficit starts to widen again, it could be a balancing factor for a potential rupee appreciation pressure that is likely as foreign investments in recently liberalised sectors start trickling in. After depreciating to a USD/INR rate of around Rs 55 in August, India’s currency recovered somewhat in the past months. It remains to be seen whether RBI will intervene in the currency markets, after being relatively hands off in the past year; though it is very likely to start cutting interest rates in 2013 as growth concerns take over inflation concerns. This could be a positive for the credit cycle and eventually growth trajectory of the Indian economy.

This post first appeared as an article in Business Bhaskar.