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Jupiter's Vazirani: rural India will drive future growth
by Matthew Goodburn on Nov 21, 2012 at 11:05
Vazirani said that the country is experiencing a two speed economy, with a pronounced industrial slowdown in the big cities countered by a resilient consumption story, particularly in rural areas.
The slowdown and political and bribery wranglings have tended to dominate the headlines on India this year, masking the fact that the stock market is up 18% in local currency in the year to date.
He said: 'The macro situation remains quite poor and there are a number of domestic issues to deal with, but the micro scenario is great because the long term story of poor people getting progressively richer is still intact and, if anything, is growing stronger.'
He also thinks the buoyant rural economy is being underpinned by a number of policy announcements made by the new government over the past few weeks such as state electricity boards finally restructuring their debt and fuel prices being lowered.
Despite these initiatives however, he thinks the government and Indian Central Bank need to cut rates more aggressively and make further fundamental tax reforms.
'Between 150 million and 200 million Indians are directly dependent on 'mom and pop' shops and the opening up of India to foreign retailers will have a huge impact on them. There have been some great steps by the government but the finance ministry and the Central Bank should be singing from the same hymn sheet and further reforms are needed.'
Vazirani expects capital gains tax to be abolished on stock market gains as well as the introduction of a new goods and services tax, effectively VAT, to boost annual Indian GDP by between 1 and 2%.
'I also expect to see the tax code simplified and all of these should act as positive triggers for the economy on the macro side.'
Vazirani anticipates that with GDP growth falling from 8.5% to around 5.5% this year the Central Bank will need to ease monetary policy.
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