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Something to cheer about

india Updated: May 27, 2013 01:46 IST
Hindustan Times
policy measures

The light is slowly becoming visible at the end of the tunnel. There are encouraging signs - a combination of economic and political factors and policy measures - that the economy may shed the sluggishness of the past couple of years and start growing once again, creating new opportunities for entrepreneurs and jobs for youth. The inflation rate is moderating. Global commodity prices are easing. And there's the very real possibility of the Reserve Bank of India again cutting rates, thus, providing the economy the much-needed growth impetus. There are other positive signs as well. The weatherman has predicted a normal monsoon this year. This augurs well for the rural economy. A bumper harvest - or just a good one - will help bring food prices down, accentuating the downward pressure on inflation and can set off a virtuous cycle wherein greater rural demand kickstarts industrial production, thus, bumping up investments, jobs and economic growth.

The expected cuts in interest rates as well as the cash reserve ratio (the proportion of deposits that banks have to park with RBI) may finally nudge commercial banks to reduce lending rates, thus, encouraging borrowers to engage in commercial activity (for individuals, this could mean buying a house or car; for businesses, this would mean investing in expansion or buyouts). There are political and policy signals as well. At long last, the government seems to have mustered the political will to push through a slew of reforms aimed at stimulating growth. Finance minister P Chidambaram, who has been on visiting foreign capitals hard selling India as an investment destination, is expected to unleash a raft of reforms to remove various roadblocks to higher growth. Among these, the expected steps to encourage more foreign institutional investments and larger amounts of external commercial borrowings are likely to lead to greater dollar inflows and ease the pressure on the rupee. The cautiously optimistic sentiment can rapidly turn positive if stalled projects start generating cash and provide jobs on the ground for people.

A caveat: the above scenario can swiftly turn negative if political instability raises its head or if the government falters once again in the policy prescriptions necessary to revive growth.