The year that went by was as exciting as any other. What impacted us were..
Demonetisation – We know 86% of currency notes in circulation were tendered illegal. The common man stood in long queues, many small and cash based businesses were impacted etc.
What we don’t know is – did it really help with the black money issue, was illegal money flushed out, what are chances that illegal notes will revert in circulation again, what kind of businesses suffered and which ones benefitted, will this improve GDP and employment, quality of life in the long run?
We await the financial ministry’s report on this in June. Judgments are reserved until then.
GST Bill was passed – I was stunned to see a mail from my son’s school saying the school fees has been increased in anticipation of GST. Looks like most things you and I spend on is going to get more expensive because at 18% - 22% many services currently at 14% tax net will rate up under GST. Experts say GST roll out will add about 1% to GDP growth, looks like will be at the cost of my pocket.
Fastest growing emerging economy – A few decades back we were an under developed country. Then we became a developing country and now we are the an emerging economy. This is how the rest of the world sees us. But as people living here, we see it differently. We struggled for basic necessities, then we struggled for better facilities, then we struggled to catch up with the world, now we struggle to stay ahead.
You know you are growing when you see the quality of your problems improve. This year officially, we are the fastest growing emerging economy of the world with better problems.
NPA clean up by banks – RBI is spearheading this and going after some big names to help clear bad debts in the books of public sector banks. This however isn’t as simple as it sounds. The NPA cleanup, though pitted to contribute about 1% to GDP growth might come at the cost of higher inflation.
Politics - Britain chose to move out of Euro, Raghuram Rajan chose to go back to Chicago and Trump was hoisted in the White House. BJP seems to be consolidating its position with the victory in UP and other states.
Always in history, political events have had a sharp but short lived impact on the economy and markets. The future isn’t going to be any different.
Inflation and interest rates - 7th Pay commission implementation will put more money in the hands of over 1 crore Indians who will spend it and push the cost of things up. Today small savings interest rates were further dropped by 0.1%.
Put these all together and the writing is clear on the wall. The only way for normal people like us to survive and build wealth in a high growth, high inflation, low interest economy as ours, is to jump over to the other side, take equity exposure and benefit from the high inflation. There isn’t any way out.
And once the fastest growing emerging economy becomes a developed economy in a few years there won’t be much juice in here. So...
I hope you are in the right with your wealth strategy and reasonable equity exposure. Good luck to you in the new financial year 2017 - 18.