Positive sentiment rules once again ? India?s credit rating raised to stable with a tighter fiscal road map, government borrowings are at lower level than last year, industrial growth is high, credit demand has improved, capex projects shelved due to the crisis are back on track, real estate hoardings have returned on city skylines, Naukri?s ads are screaming ? Jobs are back?! The Sensex has posted its fifth consecutive quarterly gain and looks set to continue its march upwards. Expectations are high from India once again, FII flowing in. We estimate this year?s growth at a brisk 8.2%, with a downside risk coming in from Westerly disturbances as before.

So what?s the problem looming on the horizon? One that has been around for a while now, and refuses to go away - inflation, not of the primary, food article variety that we have been suffering for more than a year now, but of manufacturing products. As we have been pointing out in previous newsletters, inflation shifts from one set of goods to the others but doesn?t really settle to manageable levels. Now commodity prices ? crude, iron ore, rubber, steel ? are all on their way up on global and domestic markets. Realty prices also moving up. The froth has already begun to build up again in asset prices, a worrying trend for the central bank. Rate hikes have already been factored into the markets, expect the RBI to step up the pace now.

While large firms can take these changes in their stride, the ones who need to watch out are the smaller firms and businesses, who need to have a backup Plan B with them and not get carried away by any euphoria building up. Fuel prices are going to rise, FII flows are going to strengthen the rupee, these are to be expected. Asking for sops and subsidies only protect the inefficient, which work against the long term interests of the economy, a point that we make over and over again.

For consumers, again it?s the well off who are well cushioned, the lower rungs take the brunt of inflation and unfortunately, it is left to the government to watch out for the poor. With pathetic food delivery systems, the government is doing a bad job of protecting the poor. So much of confusion that the Right to Food Bill has been sent back to be re-drafted now.

It?s not enough having the right intent, it is important to have proper implementation processes. Take for example, the Right to Education Bill, perfect in principle but again the implementation already smells of excessive control and bureaucracy ? to take just one point out of a long list of problems - for the 25% reservation for disadvantaged students in private schools, who certifies the student as disadvantaged?