Set Your Sights On The Future

The importance and significance of an independent central bank cannot be under-emphasised if an economy has to grow at its potential rate. I believe India is the only major country where interest rates have picked out and the current interest rate cut by the RBI is the first in the series of many rate cuts we may witness in the year to come. In addition to the positive macro-economic data pouring in over the last few weeks, what helped the RBI to take this decision was a commitment from the central government to contain the fiscal deficit.

We have witnessed earlier how the previous RBI governor had openly condemned the central government for a loose fiscal instance during 2009-12. This had largely curtailed the central bank’s ability to follow a loose monetary policy and revive growth. The RBI did cut rate by 125 basis points between April 2012 and May 2013 but the economy failed to reciprocate because of the government’s largesse.

Regardless, the situation has changed now with a new government coming into power last year. They are walking the talk and this is reflected in the slew of austerity measures taken by the government, including a 10 per cent cut in certain types of government spending and curbs on foreign travel and conferences. The government is taking these extraordinary steps to meet its fiscal deficit target of 4.1 per cent of the GDP.  This is against the backdrop of the Centre having nearly touched the fiscal deficit target of its budget estimate for the entire 2014-15 in the first eight months.

In one of our special reports in this issue we have covered in detail why the government seems confident of not breaching that important red line of 4.1 per cent of the GDP. One of the important ways of meeting its target is through auctioning of the telecom spectrum. Depending upon the auction price, this will have bearings for all the telecom players participating in the process. How is it going to impact them is covered in another story. Disinvestment too remains one of the most important tools to control fiscal deficit. Read our special report on disinvestment that will take you through how the government is strategizing its disinvestment drive.

The interest rate cut will have multiple benefits for the economy, one of which is the pick-up in investments. This time our cover story identifies the companies that have done substantial investment in the past and continue to do so, and how is it going to help these companies to perform better in the next few years when these investments will start yielding results.

New Year also prompts many of us to make new resolutions. To help our readers we are carrying a report on some prudent investment strategies that you may adopt as a New Year resolution for successful investments. Currently equity indices and many stocks are trading at their lifetime high. This may prompt many of you to book profits. Nonetheless, I suggest that you hold on to the quality stocks. This is not the end of the rally but the beginning of a multi-year rally where a ‘buy and hold’ strategy works best.

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