The euphoria about the spate of reforms announced by the government has settled. Though Parliament conducted little business in the monsoon session, the government did not lose steam and went ahead with measures that did not require the legislature’s stamp of approval. Major bills pending before Parliament include the Banking Laws (Amendment) Bill 2011, Insurance Laws (Amendment) Bill, 2008, Land Acquisition, Rehabilitation and Resettlement Bill, 2011, Minerals and Mining (Development and Regulation) Bill, 2011 and the GST Bill.
Sanjeev Prasad of Kotak Institutional Equities says he was earlier hopeful of introduction of the GST Bill in the winter session but that looks impossible now. In a report, Prasad says: “GST Bill, being a constitution amendment bill, will require two-thirds of Parliament to approve it and 50 per cent of the states to ratify it. Limited time and administrative complexities rule out quick implementation.”
That the government is out of its hibernation is inspiring but that isn’t enough to keep up the market’s momentum. Any disruption of Parliament will negatively impact the market sentiment, fear strategists. The benchmark Sensex is up five per cent since September but further uptick will need real action. If key economic bills are not passed by Parliament, the government will only be able to push reforms through the executive.
For the markets to remain in positive terrain, a lot more needs to be done. This is now looking difficult. Bills that need to be passed in Parliament might not see the light of day, as the Opposition parties are unlikely to allow the houses to conduct business. Analysis done by Credit Suisse suggests all but three of 112 bills pending in Parliament have either low probability or low impact. The brokerage does not expect any turnaround in the secular decline in parliamentary or legislative activity.
Besides, the macro economic situation remains challenging. The growth-inflation friction continues, with the central bank scaling up the inflation trajectory to 7.5 per cent for March 2013 from the earlier seven per cent. Also, the second quarter earnings suggest margins in select sectors have bottomed out but revenue growth remains a challenge. Emkay Global believes volume growth will be more critical for future earnings outlook.
The investment cycle too, is not showing any sign of revival. The period of investment upturn between FY04-08 was due to high domestic savings. For any revival in investments, the decline in savings rate has to be stemmed. Most analysts expect the cycle to revive only three to four years down the line. Consequently, India’s gross domestic product growth is unlikely to return to nine per cent levels anytime soon, as even global conditions are not supportive of this.
