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from Expert Zone:

The year 2013 in perspective

(Any opinions expressed here are those of the author and not of Thomson Reuters)

The economy was already in distress before 2013, but with no significant action by the government and increased pressure from external sources resulted in more danger signals. It is now doubtful whether the economy will recover in the current fiscal.

The rot began in 2011. It took hardly two-and-a-half years to bring down the growth from 8.8 percent to 4.5 percent. The monsoon was good but badly distributed with the result that the summer crop did not show much improvement.  Industry is amidst stagnation with zero growth in April- October. The capital goods sector has been hit the hardest because investment declined, while the only silver lining was the improvement in external trade. Exports increased and imports declined which brought down the CAD to less than 2 percent of GDP.

The stock market had lost steam. The U.S. Federal Reserve's declared intention to taper its stimulus kept markets under pressure. FII outflows drove the Sensex down to 18,000 and the rupee to 68 to the dollar. That forced the Reserve Bank of India (RBI) to take emergency measures and build up an additional $34 billion reserve to meet future contingencies.  On December 18, the Fed finally announced tapering by $10 billion which made little difference in the stock or currency markets.

The economy is still struggling to catch up with growth. Any recovery must start with industry and it can start only if food inflation is subdued. It is not realized that inflation was government sponsored to a large extent.  The three major sources of inflation were the continued increases in minimum support prices of agri-products, the huge expenditure on rural employment schemes and budget deficits at centre and the states. Lower demand and higher interest rates squeezed profitability of industry discouraging and disabling investment.

from Expert Zone:

India Markets Weekahead: Investors to remain bullish in election season

(Any opinions expressed here are those of the author and not of Thomson Reuters)

A surprise decision by the Reserve Bank of India (RBI) to keep the repo rate unchanged and a dovish statement from Ben Bernanke in his last news conference as U.S. Federal Reserve Chairman improved sentiment with the Nifty closing 106 points higher at 6,274.

Markets tottered for three days during the week amid fears the Nifty could break a crucial support zone between 6,120 and 6,140. Investors had discounted a 25 bps hike in monetary policy based on inflation numbers that were the highest in 14 months. RBI Governor Raghuram Rajan should be lauded for taking a practical stance as food inflation is expected to cool considerably in December due to improved supplies and the monsoon effect.

from Breakingviews:

Swift bad loan clean-up will beef up Indian banks

By Andy Mukherjee
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

India’s new purge on bad loans will make banks sturdier. The Reserve Bank of India has proposed rules whereby lenders would start creditor crisis talks for any company that owes more than $16 million, if it misses a single repayment for more than 60 days. It sounds strict, but that’s what India needs: 10 percent of state banks’ loans have already turned bad.

from Expert Zone:

Managing India’s budget deficit

(Any opinions expressed here are those of the author and not of Thomson Reuters)

The budget deficit has been a concern for India, but Finance Minister P. Chidambaram has assured that the government will not deviate from the target of 3 percent deficit in 2017. In the very first year, however, it has become almost obvious that the target will be missed.

Budget deficit is not the privilege of government alone as even corporates and households borrow like the government to fund deficits. However, they ensure that the money is used in a manner that it is repaid in time. With the government it is different -- it can borrow more in order to repay old loans and it can do so with impunity because banks are a captive market for the government securities. That results in mounting public debt which stood at 56.5 trillion rupees at the end of March 2013. Of this, 40 percent is held by banks.

from Breakingviews:

Microsoft lucky to avoid Nokia’s India tax bill

By Andy Mukherjee

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Microsoft is lucky to dodge Nokia’s tax bill in India. On Dec. 12, the Delhi High Court allowed the Finnish group to transfer its Chennai factory to the U.S. software giant as part of its planned $7.4 billion sale of its mobile handset business. While the overall deal wasn’t in doubt, Microsoft avoids Nokia’s hard-to-assess tax liability. If only Vodafone had been so fortunate.

from Expert Zone:

Indian hedge funds get knocked down but get up again

(Any opinions expressed here are those of the author and not of Thomson Reuters)

The fortunes of hedge funds focused on India continue to twist and turn, with many plots and subplots. After witnessing widespread losses and heavy redemptions in 2008, Indian hedge fund managers bounced back remarkably to post a 50 percent return in 2009. They continued their good form in 2010, delivering healthy gains of 12 percent during the year.

But in 2011, the managers witnessed losses amid declining markets and a depreciating rupee. At the end of that year, many managers expressed confidence in the underlying market for the following year and predicted gains for the rupee by mid-2012 -- both these predictions came to pass. The Eurekahedge Indian Hedge Fund Index was up 13.13 percent in 2012, making it the strongest regional hedge fund mandate for the year. Some of the funds even witnessed asset inflows in 2012 and early 2013, a rarity for Indian hedge funds since the financial crisis.

from India Insight:

Business of new and worn banknotes thriving in Delhi

Rakesh Kumar is not like most of the street vendors in Old Delhi. The hand-painted sign on his wooden counter, “exchange damaged, old notes,” reveals a different story. He sells money.

For the past 40 years, Kumar has offered customers new banknotes for soiled or damaged ones for a fee that earns him about 100,000 rupees ($1,600) a year. It has also helped him pay for the marriages of his three children.

from Breakingviews:

Narendra Modi could be India’s Shinzo Abe

By Andy Mukherjee

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Narendra Modi could be India’s Shinzo Abe. If the recent state polls are any indicator of the electorate’s mood, the opposition politician will be prime minister of the world’s largest democracy by May next year. Just like his Japanese counterpart, Modi would oversee higher asset prices and revive growth, but struggle with structural reforms.

from India Insight:

Reactions from India to the death of Nelson Mandela

Nelson Mandela, who emerged from 27 years in apartheid prisons to help guide South Africa to democracy, died on Thursday.

Mandela had been inspired by Mahatma Gandhi’s decades-long non-violent resistance to British rule. India’s revered independence leader had also spent some of his early political years in South Africa, where he was involved in the struggle against racial discrimination.

from India Insight:

India state elections: Exit polls give BJP the upper hand

By Aditya Kalra and Shashank Chouhan

The Bharatiya Janata Party (BJP) is likely to win in four of the five states that went to polls over the past month, exit poll surveys conducted by Cvoter and the India Today-ORG group showed. Such a victory will be a boost for the party and its prime ministerial candidate Narendra Modi ahead of the 2014 general elections.

The results for all the states, except Mizoram, will be announced on Sunday. Here’s what the exit polls forecast:

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