Mar 14, 2012

Crystal Ball Gazing: adrenaline rush; remain Long

I've been meaning to write an elaborate post on the budget, monetary policy, politics, etc, for the last 10 days but just haven't had the time. Quickly summarizing what I am thinking in no particular order -

  • Union Budget will be reformist. 
    • Power sector will receive attention - SEB finances and coal policy rationalization
    • Fuel prices will be hiked to manage finances... and this can add to reforms
    • FDI in retail will most probably not be put forward - politically unpalatable. Mamta and Akhilesh will never agree
    • Infra and roads will receive thrust 
    • Education and health will get focus especially in tier II and tier III cities
    • Fiscal deficit will not be cut - there is no benefit to the Government right now. Think of the electorate and the Government as growth junkies.. Fiscal deficit is probably going to be the concern for the next Government when they put the economy in 'rehab'
  • Monetary policy
    • Inflation - noises to the effect that inflation is cooling off but risks remain on account of potential rise in energy prices
    • Growth concerns will be voices in the policy statement
    • Monetary easing almost certain 
      • 40% chance - rate cut of 25bps 
      • 30% chance - rate cut of 25bps plus some relaxation in SLR
      • 20% chance - rate cut of 50bps
      • 10% chance - no easing but dovish noises
  • Politics
    • SP will form an alliance with the Congress at the Centre. Direct support, outside support, whatever, doesn't matter. Mulayam will probably get a Union Cabinet post.
    • Mamta and Congress will patch up a wee bit more. The Congress will accommodate her more, leave Bengal to its miserable state and stay away from FDI in retail which will not go down well with electorates in both UP and Bengal so it will be hard to get political support for this.
    • The Congress will try to push through popular reforms like roads, infra, etc which will get the growth momentum rolling. It will stay away from FDI.

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