Dinesh Kirkire, CEO, Kotak Mutual Fund
The performance of the economy continues to decline rapidly with every quarter. GDP growth in Q1-FY13 declined to 5.5 per cent, from 8 per cent during the same period in FY12.
The sharp moderation in mining, manufacturing and trade-related sectors was the primary reason for this deceleration . The marginal growth in sectors verifies that the growth engines have begun to cool down.
With population growth in India at around 1.4-1.8 per cent p.a, the net income addition to the economy at current rate comes to around 3.7-4.1 per cent only. With inflation continuing to remain stubborn as ever, we might as well begin to call this a business phase as onset of 'marginal stagflation'.
Within this current situation, the RBI is currently grappling with three sets of dilemmas:
I) Managing the short term trade-off between inflation and growth ;
II) Managing trade-off between short-term rupee volatility and long-term Balance of Payment (BoP) sustainability; and finally,
III) Managing trade-off between fiscal consolidation and the social mandate of the political class.
We believe growth could take precedence and it is inevitable to see a softening policy bias from RBI.
The choices are evidently not easy. Any combination of realistic outcomes limits the economic prospects in the near term. More importantly, the decisions needed to override these issues reside beyond the pale of the financial sector regulators, and requires political statesmanship.
It is apparent now that while the Indian economy has high growth potential, it is not something that is inevitable. To regain the growth trajectory, a general consensus for action between social, business and political classes is necessary. In absence of same, the business environment may remain susceptible to event-led volatility.
On another front, from the mutual funds industry perspective, the regulatory changes effected by Sebi regarding the total expense ratio, have been a breather for the industry. This will incentivise increased penetration of the mutual funds into Tier- II and-Tier III cities. We believe that with competitive costing, rising investor awareness and increasing penetration, the growth in the mutual funds industry is a matter of time.
CEO, Kotak Mutual Fund
(This is a sponsored article)