Updated on 25th February 2015


    • Low rabi output curbs agricultural growth this year and hits rural demand
    • Despite lower overall inflation, food prices set for uptick by the summer
    • Investment still to revive, govt plans on road, rail and port network to impact over the medium term
    • Moderate measured cut in interest rate expected in the next quarter


With expectations building up on the Budget announcements, the government has a lot to balance. The new GDP series has got analysts perplexed as it put forth a much brighter picture than shown by other indicators. Production numbers are still low, in fact IIP growth in the current quarter is likely to remain below 1.5%, thanks to a number of factors -delay in implementation of Make in India policy, uncertainty over a number of proposed bills like Land Acquisition Bill, GST Bill, etc., international economic slowdown and so on. The 2nd Advance Estimates for Agriculture have put lower output across the board for all crops, with just a few minor crops holding up. With MNREGA payments held up, rural markets have been extremely sluggish and are not expected to move up.While consumers are using the steep drop in fuel prices to shake their budgets around a bit, they are holding back on other purchases. So motorcycle and tractor sales have been hit hard, and firms are looking to the government for excise duty relief.

So, even as inflation in general has fallen considerably, food prices are expected to move up, making for a hot uncomfortable summer ahead. Actually, the global crude situation has saved the dayso far for households, and the government! But a comfortable fuel bill can hardly be expected to continue through the year, and the stresses will only grow worse, and this must be factored into the Budget.

On the external front, again the trade deficit numbers are looking good now, but can deteriorate with a renewed surge in gold imports oneasing of import restrictions, an expected import duty cut and wedding season demand. With the general global economic gloom, exports will also be flat and the only hope will be for continued low petroleum prices to keep the deficit in check.

There is a lot to look forward to – implementation of better targeted and lower subsidies, more investment in infrastructure, greater devolution to the states, etc. can translate into a much tighter and effective fiscal ship. If the government can pull off the political tightrope walk, vital reforms like the GST can be put into place. Despite the higher expected food prices over the next two quarters, tighter control on the fiscal front will place the RBI in a much higher comfort zone to lower rates. The year ahead can be the stepping stone to a sustained higher growth trajectory, and that’s the hope that the electorate is hanging on to.