Rising commodity costs, inflation could hamper effects of reforms drive
Experts said the new reforms rush was positive but the key worry was
whether the plans would be implemented. Rising commodity costs and
inflation would also continue to loom large over the country's growth
prospects, they said.
Amid the allegations of scams, the government has come out with a series of reforms aimed at revving up the economy. In mid-September, the government introduced big-bang reforms by allowing foreign direct investment (FDI) up to 51 per cent in multi-brand retail, 100 per cent in single-brand retail, 49 per cent in civil aviation, 49 per cent in power exchanges and 74 per cent in broadcasting (cable and DTH distribution).
It also announced disinvestment in four public sector companies - MMTC, Oil India, National Aluminium Company and Hindustan Copper.
These reforms were preceded by an increase of Rs 5 per litre in diesel prices . Also, the number of subsidised LPG (liquefied petroleum gas) cylinders to be sold per household was capped at six per year.
Following the reforms, the country's central bank, the Reserve Bank of India (RBI), cut the cash reserve ratio by 25 basis points to 4.5 per cent, which is expected to inject Rs 17,000 crore into the system and help banks reduce their lending rates.
The RBI, while announcing the mid-quarter review of the monetary policy, said that with the progressive reduction in rainfall deficit, kharif (summer crop) sowing, which is still below normal, has improved.
"Reassuringly, the late rains have augmented the storage in reservoirs, which should improve prospects of the rabi (winter) crop, mitigating to some extent concerns about the agricultural sector," the RBI said in a release.
Recently, Agriculture Minister Sharad Pawar said that while the rainfall deficit had narrowed to 8 per cent from 10-12 per cent, the production of pulses and coarse cereals during the kharif season would be sufficient to meet the domestic demand.
Market experts were divided.
A few brokerages were quick to raise their target for the BSE Sensex, whereas a few issued a note of caution. Deutsche Bank raised the December target for the Sensex by 11 per cent to 20,000 points while Citigroup increased the June 2013 target for the index by 8 per cent to 19,900.
Experts said the new reforms rush was positive but the key worry was whether the plans would be implemented. Rising commodity costs and inflation would also continue to loom large over the country's growth prospects, they said.
On the flip side, Standard Chartered Bank has reduced India's gross domestic product (GDP) growth forecast for 2012-13 from 6.2 per cent to 5.4 per cent, saying that investment has not picked up in April-September and consumer spending is slowing.
"While these (reform) measures will have a positive medium-term impact and will change the perception of policy paralysis in India, they may not have an immediate effect on growth. It will be important to maintain the reform momentum in order to put growth back onto an upward trajectory," analysts Anubhuti Sahay and Samiran Chakraborty of Standard Chartered Bank said in a note.
On the currency side, the rupee is expected to strengthen by the end of 2012. On September 17, HSBC raised its forecast for the rupee to 52 a dollar by the end of December 2012 from 57 a dollar. The reforms might quell concerns about downgrade, HSBC said in a note.
The government is, however, facing a huge opposition to its decisions. In November 2011, too, it had announced 51 per cent FDI in retail but backed down due to opposition from allies.
It also announced disinvestment in four public sector companies - MMTC, Oil India, National Aluminium Company and Hindustan Copper.
These reforms were preceded by an increase of Rs 5 per litre in diesel prices . Also, the number of subsidised LPG (liquefied petroleum gas) cylinders to be sold per household was capped at six per year.
Following the reforms, the country's central bank, the Reserve Bank of India (RBI), cut the cash reserve ratio by 25 basis points to 4.5 per cent, which is expected to inject Rs 17,000 crore into the system and help banks reduce their lending rates.
The RBI, while announcing the mid-quarter review of the monetary policy, said that with the progressive reduction in rainfall deficit, kharif (summer crop) sowing, which is still below normal, has improved.
"Reassuringly, the late rains have augmented the storage in reservoirs, which should improve prospects of the rabi (winter) crop, mitigating to some extent concerns about the agricultural sector," the RBI said in a release.
Market experts were divided.
A few brokerages were quick to raise their target for the BSE Sensex, whereas a few issued a note of caution. Deutsche Bank raised the December target for the Sensex by 11 per cent to 20,000 points while Citigroup increased the June 2013 target for the index by 8 per cent to 19,900.
Experts said the new reforms rush was positive but the key worry was whether the plans would be implemented. Rising commodity costs and inflation would also continue to loom large over the country's growth prospects, they said.
On the flip side, Standard Chartered Bank has reduced India's gross domestic product (GDP) growth forecast for 2012-13 from 6.2 per cent to 5.4 per cent, saying that investment has not picked up in April-September and consumer spending is slowing.
"While these (reform) measures will have a positive medium-term impact and will change the perception of policy paralysis in India, they may not have an immediate effect on growth. It will be important to maintain the reform momentum in order to put growth back onto an upward trajectory," analysts Anubhuti Sahay and Samiran Chakraborty of Standard Chartered Bank said in a note.
On the currency side, the rupee is expected to strengthen by the end of 2012. On September 17, HSBC raised its forecast for the rupee to 52 a dollar by the end of December 2012 from 57 a dollar. The reforms might quell concerns about downgrade, HSBC said in a note.
The government is, however, facing a huge opposition to its decisions. In November 2011, too, it had announced 51 per cent FDI in retail but backed down due to opposition from allies.
