Your financial future rests on your ability to make sense of the data. If you freak and frown about numbers, you could be doing yourself harm. On the other hand, if you dive into the data ocean, your mind may get into a tizzy and create a sense of disillusionment. Be that as it may, you would want to know the reasons behind the erosion in your wealth.
Every data point coming out is highlighting the darkness down the barrel. It could be a sharp slump in the industrial production, fewer registrations of vehicles or property, fall in sales of consumer durables, non-existent traffic at toll roads and highways, the drop in entertainment reservations and a slump in new job listings. Effectively, India’s economy has come to a halt. The future of your savings and investments rests on the ability of India’s economy to bounce back.
The government is on a package-spree. It has put out a number that has 13 zeroes after two. We have to pronounce it as ‘twenty lakh crore’ rupees. If you divide it by 130 crore (the population of India), it comes to Rs 15,384 per person. The support package distribution is not that simple. The government is distributing money through automatic stabilisers and loan guarantees.
Automatic stabilisers are adjustments in taxation to provide relief to people in a downturn situation. The government has offered various loan guarantees to farmers for crops, crop insurance, farm equipment and cold storage. It has also provided similar support to micro, small and medium enterprises. If you take out the loan guarantees and automatic stabilisers, the direct support to businesses and households is estimated to be Rs 2,40,000 crore in the first three announcements made by the government, according to one analysis by Goldman Sachs, a global investment bank. That is the money going straight into the pocket of the people.Savers and investors are two essential categories in personal finance. If you can save and invest your money, you would have concerns right now.
What’s in it for savings
A key factor to observe is the consumer price inflation rate. That can erode the value of your savings in no time. Usually, during economic turbulence, inflation is the biggest problem. Governments tend to spend more and more without generating any revenue. If inflation is not kept in check, your savings can erode in no time. You will end up buying more and more gold.
High inflation can occur due to two things: a demand shock or a supply shock. There is a good chance of both in the present situation. However, the government actions so far seem to be to ensure that inflation in the economy is checked. Politically, it can be a disaster for any government if there is inflation for a prolonged period. Low international oil prices help the government’s effort. That helps keep transportation costs to a minimum. There is expectation of a normal monsoon, and the sowing season has also gone well, according to the Reserve Bank of India analysis.
With lower demand for goods and services and a potentially slow recovery, a significant demand shock in India is unlikely. With expenses going down, you are saving more money. The good news for your savings is that the government package is unlikely to stoke any inflation.
What’s it for investments
If you are a regular investor in equity assets, the package is not giving you anything as yet in the short-term. However, there are announcements for the agriculture sector and the small business sector that could potentially enhance the efficiency in the economy. The support given to farmers would ensure rural consumption remains stable. It means people in rural India could consumer more goods and services than those in cities. The government is working on making India more investor-friendly. Businesses with high cash reserves and low debt are in a better position to move quickly to take advantage of new business-friendly rules. You are better off aligning your investments accordingly. It would be a good idea to seek professional help in identifying businesses that are financially strong or cater to rural markets and then invest.
Falling expenses and Centre’s focus on keeping the inflation in check are good for savings; invest in businesses with high cash reserves and low debt
Decoding the big bucks
A 2.4 lakh cr is estimated to be the direct support to businesses and households in the government’s first three announcements, according to a Goldman Sachs analysis
The announcements for agriculture and small business sectors could potentially enhance the efficiency in the economy. The support given to farmers would ensure rural consumption remains stable
(The writer is editor-in-chief at www.moneyminute.in)