The recent rally in the Sensex
and Nifty reflects the faith of investors in the sluggish Indian economy. The
recent upsurge in our stock market has also coincided with a falling inflation
trajectory and strengthening rupee.
With optimism is
at its peak, investors and analysts are predicting Sensex to cross 30000 points
in next 8-12 months. The overall market & investor sentiment seems to have
improved with regular feeds of key Economic Data. The experts expect the Indian
GDP to achieve 8% growth level very soon.
Till very recent, Indian economy was
reeling under a slow growth regime and the gap between the GDP growth rate and
rate of inflation has widened majorly since 2010. This had resulted in high
interest regime and made economic activities, expensive and unviable. It caused
major sufferings for common man as high-interests, high commodity prices, low
manufacturing, agriculture and service sector performances created a gloomy
season, which further widened the income disparities forcing people to curtail their
expenditures, reflecting in further economic slowdown and job cuts.
In this case, I believe in the
old saying “slow and steady wins the race”. Since, an inflated growth rate may
result in a continuous and persistent high inflation rate, which may further warrant
high-interest rates.
The high inflation rates would adversely
impact companies with high debts. The high inflation rate would also adversely impact
market sentiments, investor moods and fortunes of industrial activities, which
could get into another vicious cycle of low spends, job cuts etc.
The higher interest rates would
mean higher cost of money and would further result as limited spending in the
economy.
Hence, I
strongly feel that the Indian economy must grow at a steady and sustainable pace
and should not be forced into a bull run. The GDP growth rate at 5.5%-6%, for next
two-three fiscal years, would be suitable for a long-run sustainable economic
growth, which would allow poorest of the poor to participate in the India growth
story and would not be reeling under high cost-high inflation regime.
A steady GDP
growth rate would even avert any major upsurge in inflation and the overall economic
activities would remain sustainable, while the overall growth story remains inclusive!
