Following a landmark election verdict, investors and corporate India had expected to see a faster transition towards banner reforms in governance, processes and factor markets. This progress had been slower than anticipated, despite the government’s strong intent, which was reflected through promulgating ordinances. Contrary to perception, the first half of the ongoing budget session emerged as one the most productive parliament sessions in many years. The Lok Sabha (lower house of parliament, where the government has a majority) passed 14 Bills while the Rajya Sabha cleared 7 and both the Houses passed a set of 7 Bills. The Lok Sabha registered a 123%, productivity while Rajya Sabha too worked for 107% of the scheduled time.
With private sector investment momentum expected to stay weak and rural consumption slowing, we see the government emerging as the driving force of economic growth over the next six months as public investment is jumpstarted through conscious efforts to revive investments in roads & railways. The first visible sign of an industrial recovery may come from April, as government spending – held back in 4Q – starts to flow through Companies exposed to government policy should outperform.
With most macro factors having played out, the equity market now awaits news flow which endorses a successful translation of the improving macro fundamentals and an energetic government into an industrial recovery and a pick up in the earnings cycle. Rural consumption continues to decelerate – and may stay sedate as rural wage growth slows.
Parliament convenes again for tranche 2 of the budget session on April 20. Passage of the constitutional amendment bill on the Goods and Services Tax will emerge as the most critical indicator of the government’s ability to further push reform. The GST Bill’s passage will require a constitutional amendment, which means requirement of two-thirds majority in Parliament. The introduction of the GST would be a significant step in the field of indirect tax reforms in India and go a long way in realizing the government’s overarching objective of improving the ease of doing business.