The fluctuation in stock market
It is after 30 years that a single party has got majority of its own. Results have demonstrated that unlike previous elections, this election is not about arithmetic of alliance but it is about changing chemistry on ground. This election was an expression of hope in NDA, BJP and Mr. MODI. The election result has made a political statement and now global and domestic investors are showing their interest. Mr. Modi can turn out to be India’s “deng Xiaoping”, the leader who set China on its path of spectacular economic growth. But Mr. Modi and his cabinet ministers has lot of challenges in front of them.
- Growth rate is sub 2 %
- Fiscal deficit is abnormally high at 4.5%
- Inflation is at high of 8.9%
- Tax buoyancy suffers
- Tax GDP ratio is at 10.1% against budgeted at 10.8%
- Decades of jobless growth
- High interest rates
- Massive corruption-2G spectrum, coal allocation
- Public finance in dire state
- Lack of stable tax policy
- Mining and manufacturing sectors ‘ abysmal performance
- Disturbed investment cycle
Slow down in economic growth coupled with high inflationary pressures poses challenges to micro economic environment. In such environment Mr. Modi is committed to break the vicious cycle of high inflation and high interest rates and develop India which is a self reliant country and which can be looked upon by investors around the world as a dream point.
If and only If!
What if Narendra Modi gets support of “THE MOST FAMOUS INVESTOR” and “INVESTMENT GENIUS” – Warren Buffett to face such challenges? It’s a matter of good fortune if we can utilize his homespun wisdom and philosophy to change the present picture of India. It’s a fantasy and a wishful thought that Warren Buffett is the new Finance Minister of India. He is a sage who dedicated his whole life to learn finance and so he is the perfect person and role model as India’s Finance Minister.
Lets talk about Inflation!
Buffett, CEO and largest share holder of Berkshire Hathway is noted for his adherence to value investing philosophy. According to Buffett inflation is equivalent to a hydrogen bomb for a debtor country. He maintains that inflation is political and not an economic phenomenon. As a Finance Minister he can put permanent restraints on government spending and constant printing of money which pushes inflation higher. If inflation is reduced companies can produce real return to owner and shareholder. In order for investors to achieve real rate of return company must earn on equities, rates that are higher than investor’s misery index, total tax and inflation. So if inflation is curbed more and more global investors will look at India as a good investment point.
Its Current Accout Deficit Now!
Due to this investment cycle will be improved, rapid growth will happen, trade deficit will decrease and undervalued industries will get ripe for turn around. Warren Buffett believes expanding trade deficit devalues the currency and asset. So he can take major steps to curb this deficit as well as current account deficit, as India has lost much global business including Warren Buffett’s insurance business due to paralyzed government policies, endless due processes of Indian government till now.
Laws and Rules of Laws!
If Buffet is FM he will pass clear and strong investment laws that will survive the change of government. He will strengthen the rules of law as it applies to foreigners so they will have trust that their money is safe. He will invite more and more foreign money to narrow current account deficit. He would raise competitiveness, education and create better paying jobs for future. He will bring economic reforms, political openness and proactive leadership to encourage investors (Global and Domestic). He will work on rising employment and job, raising pay scales which can help workers to overcome poverty and inflation.
If inflation is lower, obviously interest rates are lower and so perfect balance between growth and inflation which is our prime requirement. Mr. Buffett has made billions through investing and if his wisdom is used for our betterment he can surely change the picture of India.
Of course this is just a wishful thinking. In reality if Mr. Arun Jaitley (Present FM) uses his wisdom he also can change the picture of India and India can be looked upon as a dream world.
A ‘different’ take on Mr. Arun Jaitley’s budget is coming soon. Till then Trade Smartly!