Roll Back Of Reforms?

Roll back of reforms’, is what every investor in the equity markets would fret over.  With the economy grappling for any concrete direction under pressure from rising input costs, burgeoning interest rates and stubborn inflation, the last thing that the markets would have dreamt off is stagnancy in the reforms and policy making process.

However, reeling under the burden of a coalition, the UPA-II has over the past year, on a number of occasions disappointed the markets by stalling certain crucial reform processes which would have otherwise helped the country revive itself back to the recovery mode.

After rolling back the multi-brand retail FDI in the month of December due to stiff antagonism from not only the opposition parties but also its very own allies, the government has gone on too make changes to the railway budget by rolling back the fare hike’s in the sleeper, suburban, ordinary second class, AC Chair Car and AC 3-tier classes.

While announcing this rollback, newly elected Union Railway Minister, Mukul Roy reckoned that keeping in mind the impact on the ‘aam admi’, govt. decided to cut back on the hikes. While its evident that the reason behind this rollback has got more to do with the opposition from Trinamool Congress than the burden on ‘aam admi’, what surprises us is the decision to cut back on rate hikes in the AC Chair and AC 3-tier classes, which more often that not is preferred by the more affluent classes.

While he refrained from making any changes to the rate AC 2-tier, First Class and AC 1, he decided to also put on hold the proposal for expansion of the Railway Board. He said that the Railways intend to launch an aggressive drive to mop up resources and upgrade safety measures.

This decision by the govt. to rollback on the fare hikes coupled with the see-saw performance that markets witnessed post the RBI monetary policy and union budget disappointments have further weighed down on the sentiments.

The government’s vulnerability on crucial issues has prominently been heightened over the past couple of months. The latest being its differing views with the Supreme Courts decision in providing relief to Vodafone, in the latter’s case with the tax authorities. Despite successfully receiving a reprieve from the SC, the cloud of uncertainty continues to lurk over the company’s fate, thanks to the government’s whimsical proposal to amend the tax on overseas transactions with retrospective effect from 1962.

Going forward, the government’s politically paralyzed image will come under further fire as the global economic situation continues to worsen. With Brent crude prices hovering around the USD 124 per barrel mark, rupee deprecating back to the Rs 51 levels we expect further pressure on the macro economic front. Also the recent fiasco over the CAG’s report on an alleged coal block allocation scam amounting to Rs 10.7 lakh crore and then the quick denial has left investors on the street in a state of complete confusion. In light of all these events we feel the March quarter for corporate India, which is being viewed as a major trigger would be largely impacted. Though clarity on this will emerge only in the first week of May 201, we expect Indian markets to remain pressured in the near term.