The government is committed to reviving the moribund investment cycle and has displayed its resolve to push-through much-needed reforms in sectors as diverse as insurance & pension, coal mining, telecom, power, banking & financial services. Once in power, all the extreme positions suddenly get moderated and seemingly irrational persons discover the virtues of moderation. We expect the Greece election results to have no impact as the Syriza leadership has already indicated that in the event of their victory they would like to stay in the Euro Zone. With Mario Draghi launching QE, we expect large flows into risk-on assets like emerging equities & currencies especially of those countries which are large commodity importers like India. Also, geo-politically the NATO is happy with the squeeze on finances for its trouble-making adversaries like Russia, Venezuela and Iran whose regimes are likely to face increasingly hostile protests from their citizens as the welfare spending gets curtailed due to drop in oil earnings. The massive discovery of shale oil & gas in the US has weaned it away from its large dependence on imports and added to the woes of oil exporting countries.
Oil prices are expected to remain benign due to massive demand destruction as a result of near-recessionary conditions in Euro Zone which is fighting to stave off a deflationary spiral, weak demand conditions in Japan, slow down in China that has been the prime reason for the bust-up of the ‘super-commodity cycle’ in industrial metals & crude as well as worsening aggregate demand conditions in all the commodity exporting economies like Brazil, Russia, South Africa, Australia, Indonesia etc. Every $10 drop in crude prices leads to India’s GDP rising by 0.1%, fiscal deficit falling by 0.1% and consumer inflation falling by 0.2% and we have seen a near 50-60% drop in oil prices over the last few quarters. The near-halving of crude oil prices is likely to result in a mammoth savings of upwards of $ 60 billion. A confluence of global & domestic factors has come together at the current juncture to propel India’s economic growth.