New Govt to inherit fast improving economy: ASSOCHAM

The new government at the Centre in May will inherit a downward inflation graph, helped by rising rupee and the bumper foodgrains output while the incoming Finance Minister will have much less to worry in terms of controlling fiscal situation thanks to admirable repair work carried out in the past few months despite the political pressure of elections, an ASSOCHAM Outlook Paper has said.

The foreign flows into the Indian debt and equity market are not merely riding on the expectations of a stable and a reforms -friendly government at the Centre in May but they are also being influenced by a sharp improvement in the macro picture of the economy with the RBI and the government moving in a coordinated manner following a crisis-like situation in August, 2013, an ASSOCHAM paper has said.

A host of global factors like slowdown in China, worsening situation in other emerging economies and the domestic issues such as narrowing current account deficit in conjunction with the reducing trade gap have all contributed to the improvement in the fundamentals of the economy, said Mr. Rana Kapoor President ASSOCHAM while releasing the paper.

As far as the outlook is concerned, the portfolio investment by way of inflows into the equity and debt by the foreign institutional investors would exceed the foreign direct investment in the fiscal 2014-15 as compared to the current financial year, when the FDI would be higher though the FIIs inflows are doing a catching up in February and March, mostly in the last month of the fiscal. However, a political combination ruling at the Centre would be one of the influencing factors.

The WPI-based inflation may come further down to four per cent in May-June, while the CPI-based retail inflation may take time to fall further and will remain an area of concern, though on a lesser scale. However, the new government will be carrying high expectations to bring the inflation well under six per cent even at the retail level and bring the growth back on track, said Mr. Kapoor.

Insofar as the current bout of FIIs' inflows is concerned, it is being led by the outlook improving on the back of a sharp recovery in the current account deficit and the government managing to keep the fiscal deficit well under control. While the manner in which the fiscal targets is open to a debate, the government balance-sheet looks far better today than six to eight months back.

The food grains prices, which remained a big headache for the present government, are also expected to rule steady with production of wheat and rice heading for a record in the Rabi season, though the recent unseasonal rains have done some damage to vegetables and fruits, said Mr. Kapoor.

Thus, the government can find itself in a better position to anchor the country to an economic recovery, said ASSOCHAM Chief.

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